2018 annual report - abbott

2 0 1 8 A N N U A L R E P O R T

Abbott helps people around the world live their best lives through good health, with a diverse portfolio of products aligned with the most important demographic and technological trends in healthcare. Our life-changing technologies keep hearts healthy, nourish bodies at every stage of life, help people feel and move better, and deliver information, medicines and breakthroughs to manage peoples’ health. With leadership positions in important treatment areas, and a strong presence in the world’s most rapidly growing regions, Abbott is well positioned to achieve continued above-market growth, strong cash flow, and consistently strong shareholder returns.

TABLE OF CONTENTS

1 Letter to Shareholders6 This Is Abbott12 Diabetes Care14 Neuromodulation16 Cardiac Rhythm Management18 Heart Failure Management20 Vascular Care and Structural Heart22 Established Pharmaceuticals24 Laboratory Diagnostics26 Rapid Diagnostics28 Adult Nutrition30 Pediatric Nutrition32 Financial Report

SADIE RUTENBERGSeattle, Washington

FRONT COVER STORY:

As a participant in a clinical trial, Sadie was the first child in the United States to receive Abbott’s Masters HP 15mm, the world’s smallest rotatable mechanical heart valve. Approved by the U.S Food and Drug Administration in 2018, this dime-sized device can be a life-saving option for critically ill children. Today, Sadie is a happy, active toddler, who loves to tell new friends about the “sparkle” in her heart.

MILES WHITE Chairman of the Board and Chief Executive Officer (right)ROBERT FORD President, Chief Operating Officer (left)

Dear Fellow Shareholder:

Our performance in 2018 demonstrated the Abbott model in full. We built on strategic vision, organic innovation, and managerial discipline to deliver superior results. In the face of global volatility, Abbott again provided the reliability, stability, productivity, and growth that you expect from us.

Abbott is helping to build the future of healthcare with devices that let doctors remotely monitor chronic conditions, helping reduce costs and improving patients’ quality of life.

L E T T E R T O O U R S H A R E H O L D E R S

THE COMPANYOur excellent 2018 was a microcosm of Abbott’s long history of sustained success and of the focused strategic shaping we’ve done in recent years to take it forward. And that’s exactly our intent – we manage Abbott in a very deliberate way in order to accomplish very clear goals.

Our foundational goal – the company’s purpose since its beginning – is to create life-changing technologies that help people live fuller lives through better health. We think that’s the best mission a company can have. We’re mindful of the privilege and responsibility we have in producing solutions that mean so much to so many.

Because of this keen awareness of the importance of our work, and of the legacy we carry, we view our business through the lens of long-term, sustainable success. While we work to deliver high-quality results quarter by quarter, we think in generational terms and build Abbott to succeed for the long haul. To do so, we manage the company with unwavering concentration on four pillars that uphold our leadership:

RELEVANCEThe first and most important decision we make as a company is what businesses to be in. We have shaped Abbott with great intentionality, choosing to compete in fields that offer the highest potential for breakthrough in healthcare and return on investment. This is how we keep Abbott current with its evolving environment and deliver the greatest impact – for the people who use our products and for our shareholders. Through purposeful management of our portfolio, we are now more innovative and better aligned

with the future of health technology than ever before, as you’ll see through this report’s discussion of our leadership in connected care – today’s most advanced and most personal medical technology. As a result, more than 50 percent of our sales today are from products and businesses that are new to the company in just the last six years.

BALANCEAbbott has been a diversified company for generations. We’ve always sought to have a broad range of opportunities – both because this provides more ways to win, and because it insulates the company from volatility in any particular market. Over time, each of our major businesses has been affected for better or for worse by factors in their environments. But the balance amongst them has produced successful overall performance by Abbott, year after year.

PRESENCEWe intend for Abbott to be a strong and recognized presence worldwide – known by all our stakeholders for the contributions we make to individuals and to society. We do this through our broad geographic reach, with business today in more than 160 countries. Our decades of experience in key international markets have given us deep local roots, with the majority of our more than 100,000 colleagues located outside the U.S.

And we’re further building presence by advancing our corporate identity to new audiences in new ways. Through high-visibility sponsorships, such as the Abbott World Marathon Majors, and through innovative multimedia advertising, we’ve reached more than three billion people around the world and have achieved the number-

5-YEAR TOTALSHAREHOLDER RETURN

>100%

+ Diabetes: FreeStyle Libre

+ Cardiac Rhythm Management: Confirm Rx

+ Heart Failure: CardioMEMS HF System

Leading in Connected Care

A B B O T T 2 0 1 8 A N N U A L R E P O R T

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one reputation rank with our target audiences in China and India. As a result, Abbott is better known and respected than at any time in our history.

EXECUTIONAchievement is deep in Abbott’s culture; but it’s not just an intangible – it’s built in through systems that guarantee sharp focus on the factors that keep the company successful. Our operating systems – financial, quality, regulatory, compensation, and others – are designed to keep our standards high and the bar rising.

For instance, thanks to our highly successful cash-flow-improvement initiative – which helped us generate more than $6 billion in operating cash flow last year – we’ve been able to pay down debt from our recent acquisitions much faster than originally planned. The resulting balance sheet gives us renewed strategic flexibility.

LEADERSHIPThe result of this structured approach is leadership across multiple dimensions of our business. Our goal is to have the number-one or number-two position in our markets. Thanks to the breakthrough success of FreeStyle Libre, our glucose-monitoring system that has become our latest billion-dollar product, we are now the world’s leading company in glucose testing for diabetes. This is in addition to our global leadership positions in coronary stents, transcatheter mitral-valve repair, left ventricular assist devices, spinal cord stimulation, branded-generic medicines, adult nutrition, blood transfusion and screening, and point-of-care diagnostic testing.

Leading positions allow us to drive the markets in which we compete. But our reputation rests on our excellence across the critical dimensions of our operations. In 2018, Abbott was recognized as a premier employer, as a top innovator, and as a leading global citizen, being named to the Dow Jones Sustainability Index for the 14th consecutive year, the last six as the leader in our industry. As a result of this success across our business, Abbott has now been named Fortune’s Most Admired Company in our industry for the past six years.

THE YEAR2018 provided a textbook example of how Abbott works. With our recent strategic additions now fully integrated, our focus was on running the company we’ve built. The result was an excellent year by every key measure.

All four of our major businesses performed well, leading Abbott to deliver strong organic sales growth of more than seven percent, (11.6% on a GAAP basis), which exceeded the expectations we established at the beginning of the year. This drove earnings-per-share at the top end of the range we forecast, despite headwinds from international currency.

We returned $2 billion to shareholders last year and, in December, announced a dividend increase of more than 14 percent. Abbott has now paid dividends for 95 consecutive years and has raised them for the last 47 years in a row. Combined with share-price growth of more than 25 percent, this produced a total shareholder return of nearly 30 percent, which was at the top of our peer group of companies.

Aligned with Important Trends

WE’VE BUILT A SUSTAINABLE GROWTH PLATFORM THAT WILL CONTINUE TO DRIVE SUCCESS FOR MANY YEARS TO COME

As healthcare needs grow and change around the world, Abbott works to stay ahead of those trends and respond with relevant, localized solutions.By understanding the challenges, tastes, customs, and environments that impact the health of people in each market, we can target uniquely local problems.Today, Abbott is well positioned in markets where healthcare needs are great and growing fast.


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Growth of this magnitude is rare for companies of our size, particularly as it follows an increase of more than 50 percent in 2017.

THE FUTUREFor the past 20 years we have consistently pursued a vision of the company we want Abbott to be and the impact we intend to have on the world. The result is a sustainable growth platform that will continue to drive success for many years to come.

Sustainability is the guiding principle in our management approach. Our commitment is that Abbott will be here, delivering the many benefits it provides to the people we serve. This commitment takes many forms. It means that we invest in capabilities for the future, not only in our pipeline of market-leading innovations, but also in ways such as the additional manufacturing capacity we’re building to support the dynamic growth of FreeStyle Libre and our Alinity family of diagnostic systems. It means that we continually refine our operations to reduce our environmental footprint. It means that we invest in our people to attract and develop the talent we need to maintain Abbott’s high standards, and that we continually strengthen our organization for optimal performance.

In 2018, we enhanced our leadership structure with the appointment of Robert Ford as President and Chief Operating Officer. We’ve had COOs from time to time, when the business has called for that role in our structure; with the increasing scale and complexity of our business, we deemed this to be such a time. Robert is a long-time Abbott veteran, with broad experience across our global businesses, who most recently led our largest business, Medical Devices, and oversaw our integration of St. Jude Medical, our largest-ever acquisition. Having our businesses report to him gives us more managerial flexibility and strengthens us operationally.

As this report and our strong 2018 performance make clear, Abbott has learned from its successful past, stands at a new peak in the present, and is poised for a future that goes farther and higher still. The future of healthcare is extraordinary – and Abbott is leading the way.

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MILES D. WHITE Chairman of the Board and Chief Executive OfficerMarch 4, 2019


L E T T E R T O O U R S H A R E H O L D E R S

of 2018 sales came from products and businesses new to Abbott in the last

six years.

>50%

Next-generation products and services are helping Abbott increase share and generate above-market growth in important treatment areas

Shaping Our Future with Life-Changing Technologies


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2018 FINANCIAL HIGHLIGHTS

1 On a GAAP basis, Abbott sales increased 11.6%2 Full-year 2018 GAAP diluted EPS from continuing operations $1.313 GAAP EPS growth 555% For full financial data and reconciliation of non-GAAP measures, please see Abbott’s 2018 earnings press release at www.abbottinvestor.com

WORLDWIDE SALES

$30.6BORGANIC SALES GROWTH1

7.3%ADJUSTED EARNINGS PER SHARE2

$2.88ADJUSTED EARNINGS PER SHARE GROWTH3

15.2%1-YEAR TOTAL SHAREHOLDER RETURN

~30%

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DIFFERENCE MAKING.

THIS IS ABBOTT:


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GROWTH DRIVING.

LIFE CHANGING.


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BUILT TO LEAD.

RELEVANCE

We’ve aligned our business with important scientific, medical, demographic, and social trends.

BALANCE

We’ve created a complementary mix of businesses, serving a variety of customer types.


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Over the past five years, Abbott has executed a focused strategy to position the company for sustained, accelerated growth.

EXECUTION

We’ve built a culture – and systems – that guarantee sharp focus and drive high performance.

PRESENCE

We have a long-established, highly visible presence in the world’s largest and fastest-growing markets.


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TO THE FULLEST.

Abbott is in the business of life. The company we’ve built, and the products we develop, help people of all ages live their best possible lives through better health.


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LIFE-CHANGING INNOVATION FOR PEOPLE WITH DIABETES

FREESTYLE LIBRE: BREAKTHROUGH GLUCOSE-MONITORING TECHNOLOGYAbbott is the global leader in continuous glucose monitoring. Our FreeStyle Libre 14-day system is changing the way people have tested their glucose levels for decades. The system uses a small sensor – the size of just two stacked quarters – applied to the back of the upper arm. This device can provide real-time glucose readings, day and night, for up to 14 days – all without the pain of fingersticks. The FreeStyle Libre system provides three critical pieces of data with each scan – a real-time glucose result, an eight-hour historical trend, and a directional trend arrow showing where glucose levels are headed – to help users better manage their diabetes. Studies show that users who scan more frequently experience improved average glucose levels.* FreeStyle Libre is available in every major market in the world and has more than one million users.

A GROWING NEED Diabetes prevalence has been increasing in both developed and developing markets.

Global diabetes prevalence is expected to rise significantly.

629 M

450 M

OF PEOPLE WITH DIABETES ARE CURRENTLY UNDIAGNOSED

>50%

Source: IDF Diabetes Atlas 8th edition 2017

*References: Ajjan, R. Insights from real world use of flash continuous glucose monitoring. Symposium conducted at: 78th Scientific Sessions of the American Diabetes Association; June 22 – 26, 2018; Orlando, FL.

LEADING IN CONNECTED CAREThe FreeStyle LibreLink and LibreLinkUp** smartphone apps let people monitor their glucose without the use of a separate device, then share their data with caregivers remotely.

**LibreLinkUp is not yet available in the United States

20172045

0 100 200 300 400 500 600 700 M


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MELISSA POLOVIN DEERFIELD, ILLINOIS, USASince being diagnosed with diabetes in her early 20s, Melissa had endured the pain and inconvenience of multiple daily finger-sticks as she worked to monitor and control her glucose levels. She describes her FreeStyle Libre system as “life-changing.” Because it’s so easy to use, Melissa feels that the device helps her better control her diabetes and live her life.


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ADVANCED TECHNOLOGY TO MANAGE CHRONIC PAIN AND MOVEMENT DISORDERS

Infinity DBS was the first deep-brain-stimulation system available to offer directional leads to potentially reduce side effects.

Bluetooth is a registered trademark of Bluetooth SIG, Inc

‡ indicates a third-party trademark, which is property of its respective owner.

Both our Infinity and Proclaim platforms use Bluetooth® wireless technology and iOS‡ software to offer patients an intuitive therapy experience

For people challenged by chronic pain or movement disorders, Abbott offers a portfolio of technologies designed to help them get back to living their lives. Our Proclaim devices deliver spinal-cord stimulation (SCS) for the management of chronic pain, and dorsal-root-ganglion

stimulation for patients seeking relief from complex regional pain syndrome or nerve pain following surgery or injury. The Proclaim SCS System is also the first upgradeable and recharge-free spinal-cord stimulation system capable of delivering both the standard tonic stimulation waveform and

Abbott’s proprietary BurstDR stimulation waveform, which is designed to mimic how pain signals travel to the brain. Our Infinity Deep Brain Stimulation (DBS) system addresses symptoms of Parkinson’s disease and essential tremor using mild pulses of electricity to the brain.


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6 MILLIONpeople are affected by Parkinson’s disease

MELISSA AND EDWARD HAHN WADING RIVER, NEW YORK, USAMelissa Hahn and her father, Edward, both experienced debilitating tremors from Parkinson’s disease. Then Melissa’s doctor recommended treatment with Abbott’s Infinity DBS system. After having the device implanted, Melissa found that her tremors were significantly reduced. “It gave me my life back,” she says. Edward, upon seeing the positive impact the device had for his daughter, had it implanted as well and has also seen improvement.


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SETTING THE PACE IN CARDIAC RHYTHM MANAGEMENT

MARIA ROSARIO RODRIGUEZ MADRID, SPAINFor most of her life, Maria Rosario has experienced heart arrhythmias. Last year, her doctors were sufficiently concerned that they suggested the use of Abbott’s Confirm Rx ICM to help them better understand her condition. Using the device’s Bluetooth® connectivity and an app on her smartphone, they were able to remotely monitor her heart rhythms, letting them more confidently determine treatment options.

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Abbott is working to transform the treatment of cardiac arrhythmias (irregular heartbeats) with innovative technologies like the Confirm Rx Insertable Cardiac Monitor (ICM), the world’s first smartphone-compatible ICM. The Confirm Rx system provides real-time access to patient data, letting physicians remotely identify even the most difficult-to-detect cardiac arrhythmias.

We also offer the EnSite Precision cardiac mapping system, designed to aid in the rapid diagnosis of cardiac arrhythmias; a full portfolio of cardiac ablation catheters; the Advisor HD Grid mapping catheter, which uses a first-of-its-kind electrode configuration, capturing and analyzing data in new ways to create more highly detailed maps of the heart, which may result in more safe and effective treatments; and the Assurity MRI pacemaker, which combines small size with outstanding longevity, to help patients experience fewer complications and less discomfort.

CONFIRM RXInsertable Cardiac Monitor

people in the world experience atrial fibrillation.

>33 MILLION

Source: Centers for Disease Control and Prevention, Worldwide Epidemiology of Atrial Fibrillation, a Global Burden of Disease 2010

LEADING IN CONNECTED CAREOur Confirm Rx Insertable Cardiac Monitor is the world’s first smartphone-compatible ICM


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A COMPREHENSIVE APPROACH TO HEART-FAILURE MANAGEMENT

Abbott is the market leader in left ventricular assist devices (LVADs), mini heart pumps for patients in advanced-stage heart failure whose hearts need continuous support. Our HeartMate 3 LVAD is the first implantable device of its kind to use Full MagLev flow technology, a proprietary pumping system designed to reduce trauma to the blood passing through the pump while optimizing blood flow. Improved blood flow can help minimize complications that can be associated with LVAD therapy, ultimately improving the patient’s quality of life.

In 2018, HeartMate 3 LVAD was approved for long-term use in patients who are not viable candidates for a heart transplant. In addition to these life-saving devices, we offer a comprehensive portfolio of heart-failure-management products that span the continuum of care, from monitoring for symptoms to advanced-stage therapy. Our innovations in this area include the revolutionary CardioMEMS pulmonary-artery pressure monitor and remote monitoring system, as well as specialized pacemakers designed for treating heart failure.

LEADING IN CONNECTED CAREOur CardioMEMS sensor, which is roughly the size of a paperclip, is implanted in the pulmonary artery. It connects with a remote monitoring system that communicates important information to the doctor without the need for an office visit.

CARDIOMEMSHF System


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LOREN VINAL CORNING, NEW YORK, USA When Loren began having breathing problems, he was surprised to learn that his heart was failing. He’s a strong candidate for a heart transplant sometime in the future. In the meanwhile, Abbott’s HeartMate 3 LVAD has helped him get back to doing many of the things he loves, including photography, playing guitar, and spending time with his partner, Sandy.

26 millionpeople worldwide suffer from heart failure

A COMPREHENSIVE HEART-FAILURE- MANAGEMENT PORTFOLIO• CardioMEMS HF System – Pulmonary Artery Pressure Monitor• Quadra Allure MP/Quadra Assura MP – Cardiac Resynchronization Therapies• Merlin.net Patient Care Network and Merlin@home Transmitter• HeartMate 3 LVAD – Left Ventricular Assist Device


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MARKET-LEADING TECHNOLOGIES TO RESTORE BLOOD FLOW OR REPAIR HEART DEFECTS

XIENCE SIERRAStent System

Abbott’s Vascular business provides minimally invasive products for the treatment of coronary and peripheral artery disease. Our extensive portfolio includes market-leading drug-eluting stents, bare-metal stents, coronary guide wires, balloon dilatation catheters, and imaging technology that can provide highly-detailed, 3D color views of blood vessels, which can improve success when opening a blocked artery.

KEY VASCULAR PRODUCTS

• XIENCE family of drug-eluting stents• Optis integrated imaging system• PressureWire family of pressure- sensing guidewires• Hi-Torque family of guide wires• Supera peripheral-stent system• Command guide wires• Perclose ProGlide vascular- closure system

OPTIS Integrated Imaging System

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In our Structural Heart business, technologies include MitraClip, our leading transcatheter mitral-valve- repair device, mechanical and tissue valves, transcatheter aortic-valve- replacement and structural-heart occluder therapies. In 2018, Abbott announced the results of a large-scale clinical trial demonstrating that

our MitraClip device significantly reduced death among people whose advanced heart failure had resulted in leaky mitral valves. The new data also showed that MitraClip lowered this group’s heart-failure hospitalization rates and improved their quality of life. Our Amplatzer PFO Occluder has been proven to reduce the risk of

recurrent ischemic stroke in patients who had a small opening between the upper chambers of the heart. And our Amplatzer Amulet, which is available in Europe, closes a small pouch in the heart to reduce the risk of stroke in people with atrial fibrillation who cannot rely on blood thinners.

MASAE OGIWARA KAMI, JAPAN

Masae was definitely not ready to slow down. He enjoyed working on his farm, walking his dog, Pal, and spending time with his daughter, Jun. But a leaky mitral valve had made it difficult to do even simple things like climbing a flight of stairs. Once he received Abbott’s MitraClip as a participant in a clinical trial in early 2018, he felt his energy return, letting him get back to the active life he loves.

MITRACLIPValve-Repair Device

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GLOBAL STRENGTH Abbott is a leading

pharmaceutical company in India, Russia, and across Latin America – with #1 positions in

Chile, Colombia, and Peru

ETERSA (Dasatinib) is a treatment for chronic myeloid leukemia.

TRUSTED BRANDS MEDICINES FOR THE WORLD’S FASTEST-GROWING MARKETSIn our branded-generic medicines business, high quality standards, reliable supply chain, clinical science, broad product range, value-added services, and patient-centered innovation allow us to differentiate ourselves from pure generic competitors and provide value for patients. Every day, more than 14 million people around the world use our medicines to help them live healthier lives.

We offer market-specific product portfolios that reflect the health needs of each region, and cover a wide range of conditions and medical needs, including cardiovascular (Lipanthyl, Tarka, Synthroid), gastrointestinal (Creon, Duphalac, Dicetel), and women’s health (Duphaston, Femoston). And we continually employ local market insights to drive innovations in formulation, packaging, and new indications that help us better address regional health needs.

DAGOBERTO LOPEZ BOGOTÁ, COLOMBIAWhen he was diagnosed, in 2015, Dagoberto’s doctors told him his cancer had been caught early, and they started him on Abbott’s ETERSA right away. Since that time, he’s been feeling well. He believes that’s because he received the drug before the disease had a significant impact on his health. Today, he’s retired from work, so he likes to keep active, riding his bike, taking long walks, and exercising in a park near his home.


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>1,500 products

Abbott’s continually expanding portfolio covers a range of therapeutic areas, including gastroenterology, women’s health, cardiology, and metabolic disorders, as well as specialty and primary care


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BUILDING ON OUR LEADERSHIP IN LABORATORY TESTINGIn 2018, Abbott strengthened its position in diagnostics with the continued roll-out of Alinity, our groundbreaking range of instrument platforms, tests and services. As global testing volumes rise, health systems are facing increasing pressures to perform testing as efficiently as possible with limited staff and space. The Alinity family addresses these challenges with speed, accuracy, and a smaller footprint. Abbott is also working with hospitals to transform the lab by collaborating to find solutions that help deliver better care to patients.

*Alinity hq, Alinity hs, Alinity m, and i-STAT Alinity are not yet commercially available in the United States for diagnostic use. Alinity m instrument is CE marked, assays are in development. Alinity s is not yet cleared for use in the United States and not authorized for sale in Canada.

SAGHAR MISSAGHIAN-CULLY LABORATORY ADMINISTRATOR, LONDON, ENGLAND

GAME-CHANGING SOLUTIONS FOR DIAGNOSTICS

A UNIFIED FAMILY OF INTEGRATED SYSTEMS DESIGNED TO STREAMLINE LABORATORY

OPERATIONS AND HELP LABS ACHIEVE MEASURABLY BETTER PERFORMANCE

ALINITY

clinical chemistry

immunoassayinformatics

hematologypoint of care

molecular transfusion

BUILDING THE LAB OF THE FUTURE


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In her role as Managing Director, for North West London Pathology, hosted by the Imperial College Healthcare NHS Trust in London, Saghar is charged with ensuring that the laboratories under her direction operate as efficiently as possible so they can deliver the critical information needed to help make optimal healthcare decisions. She relies on Abbott’s systems to provide high-throughput analysis to deliver fast, accurate, and cost-efficient results.

• BLOOD SCREENING• POINT-OF-CARE PORTFOLIO• HIV TESTING• INFECTIOUS-DISEASE TESTING

#1OF CRITICAL CLINICAL DECISIONS ARE INFLUENCED BY DIAGNOSTIC TEST RESULTS

~70% 60%OF THE WORLD’S DONATED BLOOD AND PLASMA IS SCREENED BY ABBOTT SYSTEMS AND TESTS


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RAPID DIAGNOSTICS EXPANDING ACCESS TO CARE AROUND THE WORLD

HIV STRIP TESTS

Our complete portfolio of rapid HIV tests can help healthcare workers across the world diagnose individual infection, prevent mother-to-child transmission, and monitor HIV prevalence.

Abbott is the world’s leading provider of rapid point-of-care tests, with a focus on cardiometabolic disease, infectious disease, and toxicology. Our portable strip tests, along with our benchtop systems and analyzers, can provide immediate, actionable information, contributing to better clinical, operational, and economic outcomes.

Key products in our Rapid Diagnostics portfolio include the ID NOW platform, which offers molecular-based tests for the influenza A&B viruses, as well as Strep A and Respiratory Syncytial Virus (RSV); the Afinion 2 platform, which provides a common series of cardiometabolic tests; and our eScreen business, which provides next-generation employment-screening applications to help companies ensure their employees are healthy and drug-free.


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THE KIKA TROUPE KAMPALA, UGANDAFounded by Kaddu Yusuf, the Kika Troupe is helping to change the narrative around HIV/AIDS in Uganda. Every member of the troupe has been impacted in some way by the country’s HIV epidemic. Many of them are regularly tested using Abbott’s rapid tests to help them stay as healthy as possible.

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Proper nutrition is the foundation of health. That’s why we develop science-based nutritional products to meet a variety of needs at every stage of life. Our Ensure line of products provides complete, balanced, and targeted nutrition to help people stay active and healthy, as well as support recovery from illness, injury, or surgery. Glucerna shakes and bars are formulated for people with diabetes.

Juven supports wound healing, including in those recovering from injury or surgery. Nepro is formulated for people with kidney disease. We also offer products for tube feeding, including Jevity for complete, balanced nutrition; Vital, for patients experiencing malabsorption, maldigestion, or impaired gastro-intestinal function; and Pivot, for metabolically stressed patients who could benefit from an immune-modulating enteral formula.

BALANCED AND TARGETED NUTRITION FOR ACTIVE LIVES


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*Krok-Schoen, J et al: Low Dietary Protein Intakes and Associated Eating Behaviors in an Aging Population: a NHANES Analysis. ASPEN 2018 Nutrition Science and Practice Conference.

MAKEBA GILES ST. LOUIS, MISSOURI, USA

Makeba is a lifestyle blogger and the busy mom of four kids. With a schedule as full as hers, she doesn’t always have time to eat right. She often relies on Ensure Max Protein to provide the balanced nutrition she needs.

ENSURE MAX PROTEIN HELPS ADULTS STAY HEALTHY AND STRONG More than 1 in 3 adults over the age of 50 don’t get the protein they need.* In 2018, Abbott introduced Ensure Max Protein, a 150-calorie nutrition drink with 30 grams of high-quality protein and 1 gram of sugar to help adults reach their health goals.

ENSUREMAX PROTEIN

>8 million peoplerely on Abbott’s Adult and Medical Nutrition products every day

#1WORLD LEADER

IN ADULT NUTRITION


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A STRONG START FOR CHILDREN AROUND THE WORLDEvery day, 11.5 million babies and children – and their parents – rely on Abbott nutrition products. Our broad offering includes our line of Similac infant and toddler formulas, which support healthy growth and development; Pedialyte, our advanced rehydration solution specially formulated to help kids and adults

replenish vital fluids and electrolytes; PediaSure, our complete, balanced nutritional drink designed with the optimal balance of protein, carbohydrates, vitamins and minerals; and Eleva, the leading organic infant formula in China.

SIMILAC PRO-ADVANCE, PRO-SENSITIVE AND PRO-TOTAL COMFORTThe first infant formula with 2’-FL Human Milk Oligosaccharide (HMO), an immune-nourishing prebiotic

KEY PRODUCT

LAUNCHESIN 2018

25

#1We are the market leader

in Pediatric Nutrition in the U.S. and

many international markets


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Dr. Ortiz, a busy pediatric specialist, has three very active children. She has relied on Similac to help each of them grow and thrive. Today, she supplements her twins’ diet with Similac 3 to make sure they’re getting all the nutrition they need.

DR. OLIVIA ORTIZ RAMIREZ WITH HER TWINS, DAMIÁN AND ANITAMEXICO CITY, MEXICO

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33 Consolidated Statement of Earnings

34 Consolidated Statement of Comprehensive Income

35 Consolidated Statement of Cash Flows

36 Consolidated Balance Sheet

38 Consolidated Statement of Shareholders’ Investment

39 Notes to Consolidated Financial Statements

60 Management Report on Internal Control Over Financial Reporting

60 Report of Independent Registered Public Accounting Firm

61 Report of Independent Registered Public Accounting Firm

62 Financial Instruments and Risk Management

63 Financial Review

77 Performance Graph

78 Summary of Selected Financial Data

79 Directors and Corporate Officers

80 Shareholder and Corporate Information

2018 FINANCIAL REPORT


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Year Ended December 31 2018 2017 2016Net Sales $30,578 $27,390 $20,853

Cost of products sold, excluding amortization of intangible assets 12,706 12,409 9,094

Amortization of intangible assets 2,178 1,975 550

Research and development 2,300 2,260 1,447

Selling, general and administrative 9,744 9,182 6,736

Total Operating Cost and Expenses 26,928 25,826 17,827

Operating Earnings 3,650 1,564 3,026

Interest expense 826 904 431

Interest income (105) (124) (99)

Net foreign exchange (gain) loss 28 (34) 495

Debt extinguishment costs 167 — —

Other (income) expense, net (139) (1,413) 786

Earnings from Continuing Operations Before Taxes 2,873 2,231 1,413

Taxes on Earnings from Continuing Operations 539 1,878 350

Earnings from Continuing Operations 2,334 353 1,063

Earnings from Discontinued Operations, net of taxes 34 124 321

Gain on sale of Discontinued Operations, net of taxes — — 16

Net Earnings from Discontinued Operations, net of taxes 34 124 337

Net Earnings $÷2,368 $÷÷«477 $÷1,400

Basic Earnings Per Common Share —Continuing Operations $÷÷1.32 $÷÷0.20 $÷÷0.71

Discontinued Operations 0.02 0.07 0.23

Net Earnings $÷÷1.34 $÷÷0.27 $÷÷0.94

Diluted Earnings Per Common Share —Continuing Operations $÷÷1.31 $÷÷0.20 $÷÷0.71

Discontinued Operations 0.02 0.07 0.23

Net Earnings $÷÷1.33 $÷÷0.27 $÷÷0.94

Average Number of Common Shares Outstanding Used for BasicEarnings Per Common Share 1,758 1,740 1,477

Dilutive Common Stock Options 12 9 6

Average Number of Common Shares Outstanding Plus DilutiveCommon Stock Options 1,770 1,749 1,483

Outstanding Common Stock Options Having No Dilutive Effect — — 5

The accompanying notes to consolidated financial statements are an integral part of this statement.

C O N S O L I D AT E D S TAT E M E N T O F E A R N I N G S(in millions except per share data)

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C O N S O L I D AT E D S TAT E M E N T O F C O M P R E H E N S I V E I N C O M E(in millions)

Year Ended December 31 2018 2017 2016Net Earnings $«2,368 $÷÷477 $«1,400

Foreign currency translation gain (loss) adjustments (1,460) 1,365 (130)

Net actuarial gains (losses) and prior service cost and credits and amortizationof net actuarial losses and prior service cost and credits, net of taxes of$47 in 2018, $(61) in 2017 and $(125) in 2016 132 (243) (326)

Unrealized gains (losses) on marketable equity securities, net of taxes of$(76) in 2017 and $(28) in 2016 — 64 (134)

Net gains (losses) on derivative instruments designated as cash flow hedges,net of taxes of $50 in 2018, $(43) in 2017 and $(4) in 2016 136 (134) (15)

Other Comprehensive Income (Loss) (1,192) 1,052 (605)

Comprehensive Income $«1,176 $«1,529 $÷÷795

Supplemental Accumulated Other Comprehensive Income (Loss) Information,net of tax as of December 31:Cumulative foreign currency translation (loss) adjustments $(4,912) $(3,452) $(4,959)

Net actuarial (losses) and prior service (cost) and credits (2,726) (2,521) (2,284)

Cumulative unrealized gains (losses) on marketable equity securities — (5) (69)

Cumulative gains (losses) on derivative instruments designated ascash flow hedges 52 (84) 49

Accumulated other comprehensive income (loss) $(7,586) $(6,062) $(7,263)


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C O N S O L I D AT E D S TAT E M E N T O F C A S H F L O W S(in millions)

Year Ended December 31 2018 2017 2016

Cash Flow From (Used in) Operating Activities:Net earnings $÷«2,368 $÷÷÷477 $ 1,400

Adjustments to reconcile earnings to net cash from operating activities —Depreciation 1,100 1,046 803

Amortization of intangible assets 2,178 1,975 550

Share-based compensation 477 406 310

Impact of currency devaluation — — 480

Amortization of inventory step-up 32 907 —

Investing and financing losses, net 126 47 86

Loss on extinguishment of debt 167 — —

Amortization of bridge financing fees — 5 165

Gains on sale of businesses — (1,163) (25)

Mylan N.V. equity investment adjustment — — 947

Gain on sale of Mylan N.V. shares — (45) —

Trade receivables (190) (207) (177)

Inventories (514) 249 (98)

Prepaid expenses and other assets 23 109 113

Trade accounts payable and other liabilities 747 615 (652)

Income taxes (214) 1,149 (699)

Net Cash From Operating Activities 6,300 5,570 3,203

Cash Flow From (Used in) Investing Activities:Acquisitions of property and equipment (1,394) (1,135) (1,121)

Acquisitions of businesses and technologies, net of cash acquired — (17,183) (80)

Proceeds from business dispositions 48 6,042 25

Proceeds from the sale of Mylan N.V. shares — 2,704 —

Purchases of investment securities (131) (210) (2,823)

Proceeds from sales of investment securities 73 129 3,709

Other 48 35 42

Net Cash From (Used in) Investing Activities (1,356) (9,618) (248)

Cash Flow From (Used in) Financing Activities:Proceeds from issuance of (repayments of ) short-term debt and other (26) (1,034) (1,767)

Proceeds from issuance of long-term debt and debt with maturitiesover 3 months 4,009 6,742 14,934

Repayments of long-term debt and debt with maturities over 3 months (12,433) (8,650) (12)

Payment of bridge financing fees — — (170)

Purchase of Alere preferred stock — (710) —

Acquisition and contingent consideration payments related to businessacquisitions — (13) (25)

Purchases of common shares (238) (117) (522)

Proceeds from stock options exercised 271 350 248

Dividends paid (1,974) (1,849) (1,539)

Net Cash From (Used in) Financing Activities (10,391) (5,281) 11,147

Effect of exchange rate changes on cash and cash equivalents (116) 116 (483)

Net Increase (Decrease) in Cash and Cash Equivalents (5,563) (9,213) 13,619

Cash and Cash Equivalents, Beginning of Year 9,407 18,620 5,001

Cash and Cash Equivalents, End of Year $÷«3,844 $÷«9,407 $18,620

Supplemental Cash Flow Information:Income taxes paid $÷÷÷740 $÷÷÷570 $ 620

Interest paid 845 917 181


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December 31 2018 2017Assets

Current Assets:Cash and cash equivalents $÷3,844 $÷9,407

Investments, primarily bank time deposits and U.S. treasury bills 242 203

Trade receivables, less allowances of — 2018: $314; 2017: $294 5,182 5,249

Inventories:Finished products 2,407 2,339

Work in process 499 472

Materials 890 790

Total inventories 3,796 3,601

Other prepaid expenses and receivables 1,559 1,667

Current assets held for disposition 9 20

Total Current Assets 14,632 20,147

Investments 897 883

Property and Equipment, at Cost:Land 501 526

Buildings 3,555 3,613

Equipment 10,756 10,394

Construction in progress 894 732

15,706 15,265

Less: accumulated depreciation and amortization 8,143 7,658

Net Property and Equipment 7,563 7,607

Intangible Assets, net of amortization 18,942 21,473

Goodwill 23,254 24,020

Deferred Income Taxes and Other Assets 1,868 1,944

Non-current Assets Held for Disposition 17 176

$67,173 $76,250


C O N S O L I D AT E D B A L A N C E S H E E T(dollars in millions)

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December 31 2018 2017Liabilities and Shareholders’ Investment

Current Liabilities:Short-term borrowings $÷÷«200 $÷÷«206

Trade accounts payable 2,975 2,402

Salaries, wages and commissions 1,182 1,187

Other accrued liabilities 3,780 3,811

Dividends payable 563 489

Income taxes payable 305 309

Current portion of long-term debt 7 508

Total Current Liabilities 9,012 8,912

Long-term Debt 19,359 27,210

Post-employment obligations and other long-term liabilities 8,080 9,030

Commitments and Contingencies

Shareholders’ Investment:Preferred shares, one dollar par valueAuthorized — 1,000,000 shares, none issued — —

Common shares, without par valueAuthorized — 2,400,000,000 sharesIssued at stated capital amount —Shares: 2018: 1,971,189,465; 2017: 1,965,908,188 23,512 23,206

Common shares held in treasury, at cost —Shares: 2018: 215,570,043; 2017: 222,305,719 (9,962) (10,225)

Earnings employed in the business 24,560 23,978

Accumulated other comprehensive income (loss) (7,586) (6,062)

Total Abbott Shareholders’ Investment 30,524 30,897

Noncontrolling Interests in Subsidiaries 198 201

Total Shareholders’ Investment 30,722 31,098

$67,173 $76,250


C O N S O L I D AT E D B A L A N C E S H E E T(dollars in millions)

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Year Ended December 31 2018 2017 2016

Common Shares:Beginning of YearShares: 2018: 1,965,908,188; 2017: 1,707,475,455; 2016: 1,702,017,390 $«23,206 $«13,027 $«12,734

Issued under incentive stock programsShares: 2018: 5,281,277; 2017: 8,834,924; 2016: 5,458,065 163 242 222

Issued for St. Jude Medical acquisitionShares: 2017: 249,597,809 — 9,835 —

Share-based compensation 479 406 311

Issuance of restricted stock awards (336) (304) (240)

End of YearShares: 2018: 1,971,189,465; 2017: 1,965,908,188; 2016: 1,707,475,455 $«23,512 $«23,206 $«13,027

Common Shares Held in Treasury:Beginning of YearShares: 2018: 222,305,719; 2017: 234,606,250; 2016: 229,352,338 $(10,225) $(10,791) $(10,622)

Issued under incentive stock programsShares: 2018: 8,870,735; 2017: 8,696,320; 2016: 5,398,469 408 400 250

Issued for St. Jude Medical acquisitionShares: 2017: 3,906,848 — 180 —

PurchasedShares: 2018: 2,135,059; 2017: 302,637; 2016: 10,652,381 (145) (14) (419)

End of YearShares: 2018: 215,570,043; 2017: 222,305,719; 2016: 234,606,250 $÷(9,962) $(10,225) $(10,791)

Earnings Employed in the Business:Beginning of Year $«23,978 $«25,565 $«25,757

Net earnings 2,368 477 1,400

Cash dividends declared on common shares (per share —2018: $1.16; 2017: $1.075; 2016: $1.045) (2,047) (1,947) (1,547)

Effect of common and treasury share transactions (90) (117) (45)

Impact of adoption of new accounting standards 351 — —

End of Year $«24,560 $«23,978 $«25,565

Accumulated Other Comprehensive Income (Loss):Beginning of Year $÷(6,062) $÷(7,263) $÷(6,658)

Business dispositions / separation — 149 —

Other comprehensive income (loss) (1,192) 1,052 (605)

Impact of adoption of new accounting standards (332) — —

End of Year $÷(7,586) $÷(6,062) $÷(7,263)

Noncontrolling Interests in Subsidiaries:Beginning of Year $÷÷÷201 $÷÷÷179 $÷÷÷115

Noncontrolling Interests’ share of income, business combinations,net of distributions and share repurchases (3) 22 64

End of Year $÷÷÷198 $÷÷÷201 $÷÷÷179


C O N S O L I D AT E D S TAT E M E N T O F S H A R E H O L D E R S ’ I N V E S TM E N T(in millions except shares and per share data)

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N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S

NOTE 1—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Business—Abbott’s principal business is the discovery,development, manufacture and sale of a broad line of health careproducts.

Basis of Consolidation—The consolidated financial statementsinclude the accounts of the parent company and subsidiaries, afterelimination of intercompany transactions.

Use of Estimates—The consolidated financial statements have beenprepared in accordance with generally accepted accounting prin-ciples in the United States and necessarily include amounts basedon estimates and assumptions by management. Actual resultscould differ from those amounts. Significant estimates includeamounts for sales rebates; income taxes; pension and other post-employment benefits, including certain asset values that are basedon significant unobservable inputs; valuation of intangible assets;litigation; derivative financial instruments; and inventory andaccounts receivable exposures.

Foreign Currency Translation—The statements of earnings of for-eign subsidiaries whose functional currencies are other than theU.S. dollar are translated into U.S. dollars using average exchangerates for the period. The net assets of foreign subsidiaries whosefunctional currencies are other than the U.S. dollar are translatedinto U.S. dollars using exchange rates as of the balance sheet date.The U.S. dollar effects that arise from translating the net assets ofthese subsidiaries at changing rates are recorded in the foreigncurrency translation adjustment account, which is included inequity as a component of Accumulated other comprehensiveincome (loss). Transaction gains and losses are recorded on theNet foreign exchange (gain) loss line of the ConsolidatedStatement of Earnings.

Revenue Recognition—Revenue from product sales is recognizedupon the transfer of control, which is generally upon shipment ordelivery, depending on the delivery terms set forth in the customercontract. Provisions for discounts, rebates and sales incentives tocustomers, and returns and other adjustments are provided forin the period the related sales are recorded. Sales incentives tocustomers are not material. Historical data is readily availableand reliable, and is used for estimating the amount of the reduc-tion in gross sales. Revenue from the launch of a new product,from an improved version of an existing product, or for shipmentsin excess of a customer’s normal requirements are recorded whenthe conditions noted above are met. In those situations, manage-ment records a returns reserve for such revenue, if necessary.In certain of Abbott’s businesses, primarily within diagnostics,Abbott participates in selling arrangements that include multipleperformance obligations (e.g., instruments, reagents, procedures,and service agreements). The total transaction price of the con-tract is allocated to each performance obligation in an amountbased on the estimated relative standalone selling prices of thepromised goods or services underlying each performance obliga-tion. Sales of product rights for marketable products are recordedas revenue upon disposition of the rights.

Income Taxes—Deferred income taxes are provided for the taxeffect of differences between the tax bases of assets and liabilitiesand their reported amounts in the financial statements at theenacted statutory rate to be in effect when the taxes are paid. Noadditional income taxes have been provided for any remainingundistributed foreign earnings not subject to the transition taxrelated to the U.S. Tax Cuts and Jobs Act, or any additional outsidebasis differences that exist, as these amounts continue to be

indefinitely reinvested in foreign operations. Interest and penaltieson income tax obligations are included in taxes on earnings.

Earnings Per Share—Unvested restricted stock units and awardsthat contain non-forfeitable rights to dividends are treated asparticipating securities and are included in the computation ofearnings per share under the two-class method. Under the two-class method, net earnings are allocated between common sharesand participating securities. Earnings from Continuing Operationsallocated to common shares in 2018, 2017 and 2016 were$2.320 billion, $346 million and $1.057 billion, respectively. Netearnings allocated to common shares in 2018, 2017 and 2016 were$2.353 billion, $468 million and $1.393 billion, respectively.

Pension and Post-Employment Benefits—Abbott accrues for theactuarially determined cost of pension and post-employmentbenefits over the service attribution periods of the employees.Abbott must develop long-term assumptions, the most significantof which are the health care cost trend rates, discount rates andthe expected return on plan assets. Differences between theexpected long-term return on plan assets and the actual returnare amortized over a five-year period. Actuarial losses and gainsare amortized over the remaining service attribution periods ofthe employees under the corridor method.

Fair Value Measurements—For assets and liabilities that are mea-sured using quoted prices in active markets, total fair value is thepublished market price per unit multiplied by the number of unitsheld without consideration of transaction costs. Assets and liabili-ties that are measured using significant other observable inputs arevalued by reference to similar assets or liabilities, adjusted forcontract restrictions and other terms specific to that asset or liabil-ity. For these items, a significant portion of fair value is derived byreference to quoted prices of similar assets or liabilities in activemarkets. For all remaining assets and liabilities, fair value is derivedusing a fair value model, such as a discounted cash flow model orBlack-Scholes model. Purchased intangible assets are recorded atfair value. The fair value of significant purchased intangible assetsis based on independent appraisals. Abbott uses a discounted cashflow model to value intangible assets. The discounted cash flowmodel requires assumptions about the timing and amount of futurenet cash flows, risk, the cost of capital, terminal values and marketparticipants. Intangible assets are reviewed for impairment on aquarterly basis. Goodwill and indefinite-lived intangible assets aretested for impairment at least annually.

Share-Based Compensation—The fair value of stock options andrestricted stock awards and units are amortized over their requi-site service period, which could be shorter than the vesting periodif an employee is retirement eligible, with a charge to compensa-tion expense.

In March 2016, the Financial Accounting Standards Board (FASB)issued Accounting Standards Update (ASU) 2016-09, Improvementsto Employee Share-Based Payment Accounting. ASU 2016-09 modi-fies several aspects of the accounting for share-based paymenttransactions, including the accounting for income taxes and classifi-cation on the statement of cash flows. Abbott adopted the standardin the first quarter of 2017 and the following changes were made tothe presentation of Abbott’s financial statements:

• All excess tax benefits or tax deficiencies are now recognized asincome tax benefit or expense as applicable. Previously, Abbottrecorded the benefits to Shareholders’ Investment. The taxbenefit recorded in Abbott’s Consolidated Statement of Earningsfor 2018 and 2017 was $90 million and $120 million, respectively.The standard did not permit retrospective presentation of thisbenefit in prior years.

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• The tax benefit or deficiency is required to be classified as anoperating activity in the statement of cash flows. Previously, itwas required to be classified within financing activities. Abbotthas adopted this standard on a prospective basis and has notrevised the classification of the excess tax benefit in the 2016Consolidated Statement of Cash Flows.

Litigation—Abbott accounts for litigation losses in accordancewith FASB ASC No. 450, “Contingencies.” Under ASC No. 450,loss contingency provisions are recorded for probable losses atmanagement’s best estimate of a loss, or when a best estimatecannot be made, a minimum loss contingency amount is recorded.Legal fees are recorded as incurred.

Cash, Cash Equivalents and Investments—Cash equivalents consistof bank time deposits, U.S. government securities money marketfunds and U.S. treasury bills with original maturities of threemonths or less. Abbott holds certain investments with a carryingvalue of approximately $325 million that are accounted for underthe equity method of accounting. Investments held in a rabbi trustand investments in publicly traded equity securities are recordedat fair value and changes in fair value are recorded in earnings.Investments in equity securities that are not traded on public stockexchanges are recorded at cost minus impairment, if any, plus orminus changes resulting from observable price changes in orderlytransactions for identical or similar investments of the same issuer.Investments in debt securities are classified as held-to-maturity, asmanagement has both the intent and ability to hold these securi-ties to maturity, and are reported at cost, net of any unamortizedpremium or discount. Income relating to these securities isreported as interest income.

Trade Receivable Valuations—Accounts receivable are stated attheir net realizable value. The allowance against gross tradereceivables reflects the best estimate of probable losses inherentin the receivables portfolio determined on the basis of historicalexperience, specific allowances for known troubled accounts andother currently available information. Accounts receivable arecharged off after all reasonable means to collect the full amount(including litigation, where appropriate) have been exhausted.

Inventories—Inventories are stated at the lower of cost (first-in,first-out basis) or net realizable value. Cost includes materialand conversion costs.

Property and Equipment—Depreciation and amortization areprovided on a straight-line basis over the estimated useful livesof the assets. The following table shows estimated useful livesof property and equipment:

Classification Estimated Useful LivesBuildings 10 to 50 years (average 27 years)Equipment 3 to 20 years (average 11 years)

Product Liability—Abbott accrues for product liability claimswhen it is probable that a liability has been incurred and theamount of the liability can be reasonably estimated based onexisting information. The liabilities are adjusted quarterly asadditional information becomes available. Receivables for insur-ance recoveries for product liability claims are recorded as assets,on an undiscounted basis, when it is probable that a recovery willbe realized. Product liability losses are self-insured.

Research and Development Costs—Internal research and develop-ment costs are expensed as incurred. Clinical trial costs incurredby third parties are expensed as the contracted work is per-formed. Where contingent milestone payments are due to thirdparties under research and development arrangements, the mile-stone payment obligations are expensed when the milestoneresults are achieved.

Acquired In-Process and Collaborations Research and Development(IPR&D)—The initial costs of rights to IPR&D projects obtained inan asset acquisition are expensed as IPR&D unless the project hasan alternative future use. These costs include initial paymentsincurred prior to regulatory approval in connection with researchand development collaboration agreements that provide rights todevelop, manufacture, market and/or sell pharmaceutical prod-ucts. The fair value of IPR&D projects acquired in a businesscombination are capitalized and accounted for as indefinite-livedintangible assets until completed and are then amortized over theremaining useful life. Collaborations are not significant.

Concentration of Risk and Guarantees—Due to the nature of itsoperations, Abbott is not subject to significant concentration risksrelating to customers, products or geographic locations. Productwarranties are not significant.

Abbott has no material exposures to off-balance sheet arrange-ments; no special purpose entities; nor activities that includenon-exchange-traded contracts accounted for at fair value. Abbotthas periodically entered into agreements in the ordinary course ofbusiness, such as assignment of product rights, with other compa-nies, which has resulted in Abbott becoming secondarily liable forobligations that Abbott was previously primarily liable. SinceAbbott no longer maintains a business relationship with the otherparties, Abbott is unable to develop an estimate of the maximumpotential amount of future payments, if any, under these obliga-tions. Based upon past experience, the likelihood of paymentsunder these agreements is remote. Abbott periodically acquires abusiness or product rights in which Abbott agrees to pay contin-gent consideration based on attaining certain thresholds or basedon the occurrence of certain events.

NOTE 2—NEW ACCOUNTING STANDARDS

RECENTLY ADOPTED ACCOUNTING STANDARDS

In February 2018, the FASB issued ASU 2018-02, Reclassification ofCertain Tax Effects from Accumulated Other ComprehensiveIncome, which allows companies to reclassify stranded tax effectsresulting from the 2017 Tax Cuts and Jobs Act, from accumulatedother comprehensive income (loss) to retained earnings (Earningsemployed in the business). Abbott adopted the new standard at thebeginning of the fourth quarter of 2018. As a result of the adoptionof the new standard, approximately $337 million of stranded taxeffects were reclassified from Accumulated other comprehensiveincome (loss) to Earnings employed in the business.

In August 2017, the FASB issued ASU 2017-12, Targeted Improvementsto Accounting for Hedging Activities, which makes changes to thedesignation and measurement guidance for qualifying hedgingrelationships and the presentation of hedge results. The standardwould have become effective for Abbott beginning in the firstquarter of 2019, with early adoption permitted. Abbott elected toearly adopt ASU 2017-12 in the fourth quarter of 2018. The impact

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of adopting the standard is not significant to Abbott’s ConsolidatedBalance Sheet and Consolidated Statement of Earnings.

In March 2017, the FASB issued ASU 2017-07, Compensation —Retirement Benefits (Topic 715): Improving the Presentation of NetPeriodic Pension Cost and Net Periodic Postretirement Benefit Costwhich changes the financial statement presentation requirementsfor pension and other postretirement benefit expense. Whileservice cost continues to be reported in the same financial state-ment line items as other current employee compensation costs,the ASU requires all other components of pension and other post-retirement benefit expense to be presented separately from servicecost, and outside any subtotal of income from operations. Thestandard was adopted by Abbott beginning in the first quarter of2018. The change in the presentation of the components of pen-sion cost per year was applied retrospectively. As a result,approximately $160 million of net pension-related income peryear was moved from the operating lines of the ConsolidatedStatement of Earnings to non-operating income for 2017 and 2016.

In November 2016, the FASB issued ASU 2016-18, Statement ofCash Flows: Restricted Cash, which requires that restricted cashbe included with cash and cash equivalents when reconciling thebeginning and end-of-period total amounts shown on the state-ment of cash flows. Abbott adopted this standard beginning in thefirst quarter of 2018, and applied the guidance retrospectively toall periods presented. Abbott did not have any restricted cashbalances in the periods presented except for $75 million ofrestricted cash acquired as part of the Alere Inc. (Alere) acquisi-tion in October 2017. The restrictions on this cash were eliminatedprior to the end of 2017.

In October 2016, the FASB issued ASU 2016-16, Income Taxes(Topic 740): Intra-Entity Transfers of Assets Other Than Inventory,which requires the recognition of the income tax effects of inter-company sales and transfers of assets, other than inventory, inthe period in which the transfer occurs. Abbott adopted the stan-dard on January 1, 2018, using a modified retrospective approachand recorded a cumulative catch-up adjustment to Earningsemployed in the business in the Consolidated Balance Sheet thatwas not significant.

In August 2016, the FASB issued ASU 2016-15, Statement of CashFlows: Classification of Certain Cash Receipts and Cash Payments,which clarifies how companies should present and classify certaincash receipts and cash payments in the statement of cash flows.The ASU became effective for Abbott in the first quarter of 2018and did not have a material impact to the Company’s ConsolidatedStatement of Cash Flows.

In January 2016, the FASB issued ASU 2016-01, FinancialInstruments – Recognition and Measurement of Financial Assets andFinancial Liabilities, which provides new guidance for the recogni-tion, measurement, presentation, and disclosure of financial assetsand liabilities. Abbott adopted the standard on January 1, 2018.Under the new standard, changes in the fair value of equity invest-ments with readily determinable fair values are recorded in Other(income) expense, net within the Consolidated Statement ofEarnings. Previously, such fair value changes were recorded inother comprehensive income. Abbott has elected the measurementalternative allowed by ASU 2016-01 for its equity investmentswithout readily determinable fair values. These investments aremeasured at cost, less any impairment, plus or minus any changesresulting from observable price changes in orderly transactions foran identical or similar investment of the same issuer. Changes in

the measurement of these investments are being recorded in Other(income) expense, net within the Consolidated Statement ofEarnings. As part of the adoption, the cumulative-effect adjustmentto Earnings employed in the business in the Consolidated BalanceSheet for net unrealized losses on equity investments that wererecorded in Accumulated other comprehensive income (loss) as ofDecember 31, 2017 was not significant.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contractswith Customers, which provides a single comprehensive model foraccounting for revenue from contracts with customers and super-sedes nearly all previously existing revenue recognition guidance.The core principle of the ASU is that an entity should recognizerevenue when it transfers promised goods or services to customersin an amount that reflects the consideration to which the entityexpects to be entitled in exchange for those goods or services. Abbottadopted the new standard as of January 1, 2018, using the modifiedretrospective approach method. Under this method, entities recog-nize the cumulative effect of applying the new standard at the dateof initial application with no restatement of comparative periodspresented. The cumulative effect of applying the new standardresulted in an increase to Earnings employed in the business in theConsolidated Balance Sheet of $23 million which was recorded onJanuary 1, 2018. The new standard has been applied only to thosecontracts that were not completed as of January 1, 2018. Theimpact of adopting ASU 2014-09 was not significant to individualfinancial statement line items in the Consolidated Balance Sheetand Consolidated Statement of Earnings.

RECENT ACCOUNTING STANDARDS NOT YET ADOPTED

In February 2016, the FASB issued ASU 2016-02, Leases, whichrequires lessees to recognize assets and liabilities for most leases onthe balance sheet. The standard becomes effective for Abbott begin-ning in the first quarter of 2019. Abbott completed a detailed reviewof its leases. Abbott will use the modified retrospective approachwith the package of practical expedients which allows Abbott tocarry forward the historical lease classification for leases existing at,or entered into after the beginning of the period of adoption and toaccount for lease and non-lease components as a single lease com-ponent for its lessee arrangements. Abbott does not expect the newlease accounting standard to have a material impact on the amountsreported in the Consolidated Statement of Earnings. As a result ofadopting ASU 2016-02, Abbott expects to record approximately$800 million to $900 million of right of use assets and lease liabili-ties for operating leases on the Consolidated Balance Sheet.

NOTE 3—REVENUE

Abbott’s revenues are derived primarily from the sale of a broadline of health care products under short-term receivable arrange-ments. Patent protection and licenses, technological andperformance features, and inclusion of Abbott’s products under acontract most impact which products are sold; price controls,competition and rebates most impact the net selling prices ofproducts; and foreign currency translation impacts the measure-ment of net sales and costs. Abbott’s products are generally solddirectly to retailers, wholesalers, distributors, hospitals, healthcare facilities, laboratories, physicians’ offices and governmentagencies throughout the world. Abbott has four reportable seg-ments: Established Pharmaceutical Products, Diagnostic Products,Nutritional Products, and Cardiovascular and NeuromodulationProducts. Diabetes Care is a non-reportable segment and isincluded in Other in the following table.

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The following tables provide detail by sales category:

2018 2017(in millions) U.S. Int’l Total U.S. Int’l TotalEstablished Pharmaceutical Products —

Key Emerging Markets $ ÷— $÷3,363 $÷3,363 $ — $÷3,307 $÷3,307

Other — 1,059 1,059 — 980 980

Total — 4,422 4,422 — 4,287 4,287

Nutritionals —Pediatric Nutritionals 1,843 2,254 4,097 1,777 2,112 3,889

Adult Nutritionals 1,232 1,900 3,132 1,254 1,782 3,036

Total 3,075 4,154 7,229 3,031 3,894 6,925

Diagnostics —Core Laboratory 985 3,401 4,386 921 3,142 4,063

Molecular 152 332 484 160 303 463

Point of Care 432 121 553 440 110 550

Rapid Diagnostics 1,148 924 2,072 296 244 540

Total 2,717 4,778 7,495 1,817 3,799 5,616

Cardiovascular and Neuromodulation —Rhythm Management 1,019 1,072 2,091 1,030 1,073 2,103

Electrophysiology 764 904 1,668 609 773 1,382

Heart Failure 467 179 646 491 152 643

Vascular 1,126 1,803 2,929 1,180 1,712 2,892

Structural Heart 488 751 1,239 432 651 1,083

Neuromodulation 690 174 864 636 172 808

Total 4,554 4,883 9,437 4,378 4,533 8,911

Other 493 1,502 1,995 447 1,204 1,651

Total $10,839 $19,739 $30,578 $9,673 $17,717 $27,390

gross sales when Abbott records its sale of the product. Settlementof the rebate generally occurs from one to six months after sale.Abbott regularly analyzes the historical rebate trends and makesadjustments to reserves for changes in trends and terms of rebateprograms. Historically, adjustments to prior years’ rebate accrualshave not been material to net income.

Other allowances charged against gross sales include cash discountsand returns, which are not significant. Cash discounts are knownwithin 15 to 30 days of sale, and therefore can be reliably estimated.Returns can be reliably estimated because Abbott’s historicalreturns are low, and because sales return terms and other salesterms have remained relatively unchanged for several periods.Product warranties are also not significant.

Abbott also applies judgment in determining the timing of revenuerecognition related to contracts that include multiple performanceobligations. The total transaction price of the contract is allocated toeach performance obligation in an amount based on the estimatedrelative standalone selling prices of the promised goods or servicesunderlying each performance obligation. For goods or services forwhich observable standalone selling prices are not available, Abbottuses an expected cost plus a margin approach to estimate the stand-alone selling price of each performance obligation.

REMAINING PERFORMANCE OBLIGATIONS

As of December 31, 2018, the estimated revenue expected to berecognized in the future related to performance obligations thatare unsatisfied (or partially unsatisfied) was approximately

Abbott recognizes revenue from product sales upon the transferof control, which is generally upon shipment or delivery, depend-ing on the delivery terms set forth in the customer contract. Formaintenance agreements that provide service beyond Abbott’sstandard warranty and other service agreements, revenue isrecognized ratably over the contract term. A time-based measureof progress appropriately reflects the transfer of services to thecustomer. Payment terms between Abbott and its customers varyby the type of customer, country of sale, and the products orservices offered. The term between invoicing and the paymentdue date is not significant.

Management exercises judgment in estimating variable consider-ation. Provisions for discounts, rebates and sales incentives tocustomers, and returns and other adjustments are provided for inthe period the related sales are recorded. Sales incentives to cus-tomers are not material. Historical data is readily available andreliable, and is used for estimating the amount of the reduction ingross sales. Abbott provides rebates to government agencies, whole-salers, group purchasing organizations and other private entities.

Rebate amounts are usually based upon the volume of purchasesusing contractual or statutory prices for a product. Factors usedin the rebate calculations include the identification of whichproducts have been sold subject to a rebate, which customer orgovernment agency price terms apply, and the estimated lag timebetween sale and payment of a rebate. Using historical trends,adjusted for current changes, Abbott estimates the amount of therebate that will be paid, and records the liability as a reduction of

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$2.9 billion in the Diagnostic Products segment and approxi-mately $410 million in the Cardiovascular and NeuromodulationProducts segment. Abbott expects to recognize revenue onapproximately 60 percent of these remaining performanceobligations over the next 24 months, approximately 16 percentover the subsequent 12 months and the remainder thereafter.

These performance obligations primarily reflect the future saleof reagents/consumables in contracts with minimum purchaseobligations, extended warranty or service obligations relatedto previously sold equipment, and remote monitoring servicesrelated to previously implanted devices. Abbott has applied thepractical expedient described in Accounting StandardsCodification (ASC) 606-10-50-14 and has not included remainingperformance obligations related to contracts with originalexpected durations of one year or less in the amounts above.

ASSETS RECOGNIZED FOR COSTS TO OBTAIN A CONTRACTWITH A CUSTOMER

Abbott has applied the practical expedient in ASC 340-40-25-4and records as an expense the incremental costs of obtainingcontracts with customers in the period of occurrence when theamortization period of the asset that Abbott otherwise wouldhave recognized is one year or less. Upfront commission fees paidto sales personnel as a result of obtaining or renewing contractswith customers are incremental to obtaining the contract. Abbottcapitalizes these amounts as contract costs. Capitalized commis-sion fees are amortized based on the contract duration to whichthe assets relate which ranges from two to ten years. The amountsas of December 31, 2018, were not significant.

Additionally, the cost of transmitters provided to customers that useAbbott’s remote monitoring service with respect to certain medicaldevices are capitalized as contract costs. Capitalized transmittercosts are amortized based on the timing of the transfer of servicesto which the assets relate, which typically ranges from eight to tenyears. The amounts as of December 31, 2018, were not significant.

OTHER CONTRACT ASSETS AND LIABILITIES

Abbott discloses Trade receivables separately in the ConsolidatedBalance Sheet at their net realizable value. Contract assets primar-ily relate to Abbott’s conditional right to consideration for workcompleted but not billed at the reporting date. Contract assets atthe beginning and end of the period, as well as the changes in thebalance, were not significant.

Contract liabilities primarily relate to payments received fromcustomers in advance of performance under the contract. Abbott’scontract liabilities arise primarily in the Cardiovascular andNeuromodulation reportable segment when payment is receivedupfront for various multi-period extended service arrangements.Changes in the contract liabilities during the period are as follows:

(in millions)Contract LiabilitiesBalance at January 1, 2018 $«198

Unearned revenue from cash received during the period 304

Revenue recognized that was included in contract liabilitybalance at beginning of period (243)

Balance at December 31, 2018 $«259

NOTE 4—DISCONTINUED OPERATIONS AND ASSETSHELD FOR DISPOSITION

On February 27, 2015, Abbott completed the sale of its developedmarkets branded generics pharmaceuticals business to Mylan Inc.(Mylan) for 110 million ordinary shares (or approximately22 percent) of a newly formed entity (Mylan N.V.) that combinedMylan’s existing business and Abbott’s developed markets brandedgenerics pharmaceuticals business.

In April 2015, Abbott sold 40.25 million of the 110 million ordi-nary shares of Mylan N.V. received in the sale of the developedmarkets branded generics pharmaceuticals business to Mylan.In 2015, Abbott recorded a pretax gain of $207 million on$2.29 billion in net proceeds from the sale of these shares. In 2017,Abbott sold 69.75 million ordinary shares of Mylan N.V. andreceived $2.704 billion in proceeds. Abbott recorded a $45 milliongain from the sale of these ordinary shares in 2017, which wasrecognized in the Other (income) expense, net line of theConsolidated Statement of Earnings. Abbott no longer has anownership interest in Mylan N.V.

On February 10, 2015, Abbott completed the sale of its animalhealth business to Zoetis Inc. Abbott received cash proceeds of$230 million and reported an after tax gain on the sale of approxi-mately $130 million. In the first quarter of 2016, Abbott receivedan additional $25 million of proceeds due to the expiration of aholdback agreement associated with the sale of this business andreported an after-tax gain of $16 million.

As a result of the disposition of the above businesses, the operat-ing results of these businesses up to the date of sale are reportedas part of discontinued operations on the Earnings fromDiscontinued Operations, net of taxes line in the ConsolidatedStatement of Earnings.

On January 1, 2013, Abbott completed the separation of AbbVieInc. (AbbVie), which was formed to hold Abbott’s research-basedproprietary pharmaceuticals business. Abbott has retained allliabilities for all U.S. federal and foreign income taxes on incomeprior to the separation, as well as certain non-income taxes attrib-utable to AbbVie’s business. AbbVie generally will be liable for allother taxes attributable to its business.

The net earnings of discontinued operations include incometax benefits of $39 million in 2018, $109 million in 2017 and$325 million in 2016. These tax benefits primarily relate to theresolution of various tax positions related to AbbVie’s operationsfor years prior to the separation.

In September 2016, Abbott announced that it entered into adefinitive agreement to sell Abbott Medical Optics (AMO), itsvision care business, to Johnson & Johnson for $4.325 billion incash, subject to customary purchase price adjustments for cash,debt and working capital. The decision to sell AMO reflectedAbbott’s proactive shaping of its portfolio in line with its strategicpriorities. In February 2017, Abbott completed the sale of AMO toJohnson & Johnson and recognized a pre-tax gain of $1.163 billionincluding working capital adjustments, which was reported in theOther (income) expense, net line of the Consolidated Statement ofEarnings in 2017. Abbott recorded an after-tax gain of $728 millionin 2017 related to the sale of AMO. The operating results of AMOup to the date of sale continued to be included in Earnings from

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continuing operations as the business did not qualify for reportingas discontinued operations. For 2017 and 2016, the AMO earnings(losses) before taxes included in Abbott’s consolidated earningswere $(18) million and $30 million, respectively.

As discussed in Note 7—Business Acquisitions, in conjunctionwith the acquisition of Alere, Abbott sold the Triage MeterProcardiovascular and toxicology business and the assets and liabili-ties related to its B-type Natriuretic Peptide assay business run onBeckman Coulter analyzers to Quidel Corporation (Quidel). Thelegal transfer of certain assets related to these businesses did notoccur at the close of the sale to Quidel due to, among other factors,the time required to transfer marketing authorizations and otherregulatory requirements in various countries. Under the terms ofthe sale agreement with Abbott, Quidel is subject to the risks andentitled to the benefits generated by these operations and assets.The assets presented as held for disposition in the ConsolidatedBalance Sheet as of December 31, 2018 and 2017, primarily relateto the businesses sold to Quidel.

The following is a summary of the assets held for disposition as ofDecember 31, 2018 and 2017:

(in millions)December 31 2018 2017Trade receivables, net $ 6 $÷12

Total inventories 3 8


Net property and equipment — 56

Intangible assets, net of amortization — 18

Goodwill 17 102

Non-current assets held for disposition 17 176

Total assets held for disposition $26 $196

NOTE 5—SUPPLEMENTAL FINANCIAL INFORMATION

Other (income) expense, net, for 2018, 2017 and 2016 includesapproximately $160 million of income related to the non-servicecost components of the net periodic benefit costs associated withthe pension and post-retirement medical plans. These amountsare being reported in other (income) expense as a result of theadoption of the new accounting standard for recognizing pensioncost. Other (income) expense, net, for 2017 includes a pre-tax gainof $1.163 billion related to the sale of AMO to Johnson & Johnson.See Note 4 — Discontinued Operations and Assets Held forDisposition for further discussion of this sale. In 2017, Abbottsold 69.75 million ordinary shares of Mylan N.V. and received$2.704 billion in proceeds and recorded a $45 million pre-tax gainrelated to the sale of these ordinary shares. Other (income)expense, net, for 2016 includes expense of $947 million to adjustAbbott’s holding of Mylan N.V. ordinary shares due to a declinein the fair value of the securities which was considered byAbbott to be other than temporary.

The detail of various balance sheet components is as follows:

(in millions)December 31 2018 2017

Long-term Investments:Equity securities $856 $797

Other 41 86

Total $897 $883

Abbott’s equity securities as of December 31, 2018 and December 31,2017, include $307 million and $363 million, respectively, of invest-ments in mutual funds that are held in a rabbi trust acquired aspart of the St. Jude Medical, Inc. (St. Jude Medical) businessacquisition. These investments, which are specifically designatedas available for the purpose of paying benefits under a deferredcompensation plan, are not available for general corporate pur-poses and are subject to creditor claims in the event of insolvency.

Abbott also holds certain investments as of December 31, 2018with a carrying value of approximately $325 million that areaccounted for under the equity method of accounting and otherequity investments with a carrying value of $211 million that donot have a readily determinable fair value. The $211 million carry-ing value includes an unrealized gain of approximately $50 millionon an investment. The gain was recorded in the second quarter of2018 and relates to an observable price change for a similar invest-ment of the same issuer.


Other Accrued Liabilities:Accrued rebates payable to government agencies $ «166 $ 124

Accrued other rebates (a) 608 498

All other 3,006 3,189

Total $3,780 $3,811

(a) Accrued wholesaler chargeback rebates of $197 million and $178 million at December 31, 2018and 2017, respectively, are netted in trade receivables because Abbott’s customers are invoicedat a higher catalog price but only remit to Abbott their contract price for the products.


Post-employment Obligations and Other Long-termLiabilities:Defined benefit pension plans and post-employmentmedical and dental plans for significant plans $2,040 $2,169

Deferred income taxes 2,056 2,006

All other (b) 3,984 4,855

Total $8,080 $9,030

(b) 2018 includes approximately $465 million of net unrecognized tax benefits, as well asapproximately $65 million of acquisition consideration payable. 2017 includes approxi-mately $835 million of net unrecognized tax benefits, as well as approximately$100 million of acquisition consideration payable.

Since January 2010, Venezuela has been designated as a highlyinflationary economy under U.S. GAAP. On February 17, 2016, theVenezuelan government announced that its three-tier exchangerate system would be reduced to two rates renamed the DIPROand DICOM rates. The DIPRO was the official rate for food andmedicine imports and was adjusted from 6.3 to 10 bolivars per U.S.dollar. The DICOM rate was a floating market rate published dailyby the Venezuelan central bank, which at the end of the first quar-ter of 2016 was approximately 263 bolivars per U.S. dollar. As aresult of decreasing government approvals to convert bolivars toU.S. dollars to pay for intercompany accounts, as well as the accel-erating deterioration of economic conditions in the country, Abbottconcluded that it was appropriate to move to the DICOM rate atthe end of the first quarter of 2016. As a result, Abbott recorded aforeign currency exchange loss of $480 million in 2016 to revalueits net monetary assets in Venezuela. After the revaluation, Abbott’sinvestment in its Venezuelan operations was not significant.

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NOTE 6—ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The components of the changes in accumulated other comprehensive income (loss) from continuing operations, net of income taxes,are as follows:

(in millions)

CumulativeForeign Currency

TranslationAdjustments

Net ActuarialLosses and Prior

Service Costsand Credits

CumulativeUnrealized

Gains (Losses) onMarketable Equity

Securities

Cumulative Gains(Losses) onDerivative

InstrumentsDesignated as Cash

Flow Hedges TotalBalance at December 31, 2016 $(4,959) $(2,284) $÷(69) $ 49 $(7,263)

Impact of business dispositions 142 6 — 1 149

Other comprehensive income (loss) beforereclassifications 1,365 (333) 182 (170) 1,044

(Income) loss amounts reclassified from accumulatedother comprehensive income (a) — 90 (118) 36 8

Net current period other comprehensive income (loss) 1,365 (243) 64 (134) 1,052

Balance at December 31, 2017 (3,452) (2,521) (5) (84) (6,062)

Impact of adoption of new accounting standards — (337) 5 — (332)

Other comprehensive income (loss) beforereclassifications (1,488) (18) — 58 (1,448)

(Income) loss amounts reclassified from accumulatedother comprehensive income (a) 28 150 — 78 256

Net current period other comprehensive income (loss) (1,460) 132 — 136 (1,192)

Balance at December 31, 2018 $(4,912) $(2,726) $ — $ 52 $(7,586)

(a) Reclassified amounts for foreign currency translation adjustments are recorded in the Consolidated Statement of Earnings as Net Foreign exchange (gain) loss; gains (losses) on marketableequity securities are recorded as Other (income) expense and gains/losses related to cash flow hedges are recorded as Cost of products sold. Net actuarial losses and prior service cost isincluded as a component of net periodic benefit cost – see Note 14 for additional information.

NOTE 7—BUSINESS ACQUISITIONS

On January 4, 2017, Abbott completed the acquisition of St. JudeMedical, a global medical device manufacturer, for approximately$23.6 billion, including approximately $13.6 billion in cash andapproximately $10 billion in Abbott common shares, which repre-sented approximately 254 million shares of Abbott common stock,based on Abbott’s closing stock price on the acquisition date. Aspart of the acquisition, approximately $5.9 billion of St. JudeMedical’s debt was assumed, repaid or refinanced by Abbott. Theacquisition provides expanded opportunities for future growthand is an important part of the company’s ongoing effort todevelop a strong, diverse portfolio of devices, diagnostics, nutri-tionals and branded generic pharmaceuticals. The combinedbusiness competes in nearly every area of the cardiovasculardevice market, as well as in the neuromodulation market.

Under the terms of the agreement, for each St. Jude Medicalcommon share, St. Jude Medical shareholders received $46.75 incash and 0.8708 of an Abbott common share. At an Abbott stockprice of $39.36, which reflects the closing price on January 4, 2017,this represented a value of approximately $81 per St. Jude Medicalcommon share and total purchase consideration of $23.6 billion.The cash portion of the acquisition was funded through a combi-nation of medium and long-term debt issued in November 2016and a $2.0 billion 120-day senior unsecured bridge term loanfacility which was subsequently repaid.

The final allocation of the fair value of the St. Jude Medical acqui-sition is shown in the table below.

(in billions)Acquired intangible assets, non-deductible $15.5

Goodwill, non-deductible 13.1

Acquired net tangible assets 3.0

Deferred income taxes recorded at acquisition (2.7)

Net debt (5.3)

Total final allocation of fair value $23.6

The goodwill is primarily attributable to expected synergiesfrom combining operations, as well as intangible assets that donot qualify for separate recognition. The goodwill is identifiableto the Cardiovascular and Neuromodulation Products reportablesegment. The acquired tangible assets consist primarily of tradeaccounts receivable of approximately $1.1 billion, inventory ofapproximately $1.7 billion, other current assets of $176 million,property and equipment of approximately $1.5 billion, and otherlong-term assets of approximately $455 million. The acquiredtangible liabilities consist of trade accounts payable and othercurrent liabilities of approximately $1.1 billion and other non-current liabilities of approximately $870 million.

In 2016, Abbott and St. Jude Medical agreed to sell certain busi-nesses to Terumo Corporation (Terumo) for approximately$1.12 billion. The sale included the St. Jude Medical Angio-Seal™and Femoseal™ vascular closure and Abbott’s Vado® SteerableSheath businesses. The sale closed on January 20, 2017 and no gainor loss was recorded in the Consolidated Statement of Earnings.

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On October 3, 2017, Abbott acquired Alere, a diagnostic deviceand service provider, for $51.00 per common share in cash, whichequated to a purchase price of approximately $4.5 billion. As partof the acquisition, Abbott tendered for Alere’s preferred shares fora total value of approximately $0.7 billion. In addition, approxi-mately $3.0 billion of Alere’s debt was assumed and subsequentlyrepaid. The acquisition establishes Abbott as a leader in point ofcare testing, expands Abbott’s global diagnostics presence andprovides access to new products, channels and geographies.Abbott utilized a combination of cash on hand and debt to fundthe acquisition. See Note 11 — Debt and Lines of Credit for furtherdetails regarding the debt utilized for the acquisition.

The final allocation of the fair value of the Alere acquisition isshown in the table below.

(in billions)Acquired intangible assets, non-deductible $«3.5




Net debt (2.6)

Preferred stock (0.7)

Total final allocation of fair value $«4.5

The goodwill is primarily attributable to expected synergiesfrom combining operations, as well as intangible assets that donot qualify for separate recognition. The goodwill is identifiableto the Diagnostic Products reportable segment. The approximatevalue of the acquired tangible assets is $430 million of tradeaccounts receivable, $425 million of inventory, $225 million ofother current assets, $540 million of property and equipment, and$210 million of other long-term assets. The approximate value ofthe acquired tangible liabilities is $675 million of trade accountspayable and other current liabilities and $145 million of othernon-current liabilities.

In the third quarter of 2017, Alere entered into agreements to sellits Triage MeterPro cardiovascular and toxicology business andthe assets and liabilities related to its B-type Natriuretic Peptideassay business run on Beckman Coulter analyzers to Quidel. Thetransactions with Quidel reflect a total purchase price of$400 million payable at the close of the transaction, $240 millionpayable in six annual installments beginning approximately sixmonths after the close of the transaction, and contingent consider-ation with a maximum value of $40 million. In the third quarterof 2017, Alere entered into an agreement with Siemens DiagnosticsHolding II B.V. (Siemens) to sell its subsidiary, Epocal Inc., forapproximately $200 million payable at the close of the transaction.Alere agreed to divest these businesses in connection with thereview by the Federal Trade Commission and the EuropeanCommission of Abbott’s agreement to acquire Alere. The sale toQuidel closed on October 6, 2017, and the sale to Siemens closedon October 31, 2017. No gain or loss on these sales was recordedin the Consolidated Statement of Earnings.

In 2017, consolidated Abbott results include $6.5 billion of salesand a pre-tax loss of approximately $1.3 billion related to theSt. Jude Medical and Alere acquisitions, including approximately$1.5 billion of intangible amortization and $907 million of inven-tory step-up amortization. The pre-tax loss excludes acquisition,integration and restructuring-related costs.

If the acquisitions of St. Jude Medical and Alere had occurred atthe beginning of 2016, unaudited pro forma consolidated net saleswould have been approximately $28.9 billion and the unauditedpro forma consolidated net loss from continuing operations wouldhave been approximately $485 million in 2016. This includesamortization of approximately $940 million of inventory step-upand $1.7 billion of intangibles related to St. Jude Medical andAlere. For 2017, unaudited pro forma consolidated net sales wouldhave been approximately $28.9 billion and unaudited pro formaconsolidated net earnings from continuing operations would havebeen approximately $750 million, which includes $225 million ofintangible amortization related to Alere. The unaudited pro formaconsolidated net earnings from continuing operations for 2017exclude inventory step-up amortization related to St. Jude Medicaland Alere of approximately $907 million which was recorded in2017 but included in the 2016 unaudited pro forma results as notedabove. The unaudited pro forma information is not necessarilyindicative of the consolidated results of operations that wouldhave been realized had the St. Jude Medical and Alere acquisitionsbeen completed as of the beginning of 2016, nor is it meant to beindicative of future results of operations that the combined entitywill experience.

On July 17, 2017, Abbott commenced a tender offer to purchasefor cash the 1.77 million outstanding shares of Alere’s Series BConvertible Perpetual Preferred Stock at a price of $402 per share,plus accrued but unpaid dividends to, but not including, the settle-ment date of the tender offer. This tender offer was subject to thesatisfaction of certain conditions, including Abbott’s acquisitionof Alere and upon there being validly tendered (and not properlywithdrawn) at the expiration date of the tender offer that numberof shares of Preferred Stock that equaled at least a majority of thePreferred Stock issued and outstanding at the expiration of thetender offer. The tender offer expired on October 3, 2017. All con-ditions to the offer were satisfied and Abbott accepted for paymentthe 1.748 million shares of Preferred Stock that were validly ten-dered (and not properly withdrawn). The remaining shares werecashed out for an amount equal to the $400.00 per share liquida-tion preference of such shares, plus accrued but unpaid dividends,without interest. Payment for all of the shares of Preferred Stockwas made in the fourth quarter of 2017.

NOTE 8—GOODWILL AND INTANGIBLE ASSETS

The total amount of goodwill reported was $23.3 billion atDecember 31, 2018 and $24.0 billion at December 31, 2017. Theamounts reported at December 31, 2018 and 2017 exclude goodwillreported in non-current assets held for disposition. In 2018, foreigncurrency translation adjustments decreased goodwill by approxi-mately $440 million. Purchase price accounting adjustmentsassociated with the Alere acquisition decreased goodwill by$326 million in 2018. Goodwill increased by $17.2 billion in 2017due to the completion of the St. Jude Medical and Alere acquisi-tions, partially offset by a decrease of $1.5 billion due to the sale ofcertain businesses to Terumo, Quidel and Siemens. Foreign cur-rency translation increased goodwill by $653 million in 2017. Theamount of goodwill related to reportable segments at December 31,2018 was $3.0 billion for the Established Pharmaceutical Productssegment, $286 million for the Nutritional Products segment,$3.7 billion for the Diagnostic Products segment, and $15.3 billionfor the Cardiovascular and Neuromodulation Products segment.In 2018 and 2017, there were no significant reductions of goodwillrelating to impairments.

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The gross amount of amortizable intangible assets, primarilyproduct rights and technology was $25.7 billion and $25.6 billionas of December 31, 2018 and 2017, respectively, and accumulatedamortization was $10.4 billion and $8.1 billion as of December 31,2018 and 2017, respectively. In 2018, purchase price allocationadjustments increased intangible assets by $280 million andforeign currency translation adjustments decreased intangibleassets by $281 million. In 2017, the gross amount of amortizableintangible assets increased by approximately $14.5 billion due tothe completion of the St. Jude Medical and Alere acquisitions,partially offset by a decrease of $210 million due to the sale ofcertain businesses to Quidel and Siemens.

Indefinite-lived intangible assets, which relate to in-processresearch and development acquired in a business combination,were approximately $3.6 billion and $3.9 billion at December 31,2018 and 2017, respectively. The decrease in indefinite-lived intan-gible assets in 2018 primarily relates to purchase price allocationadjustments associated with the Alere acquisition. In 2017,in-process research and development increased by $4.5 billiondue to the completion of the St. Jude Medical and Alere acquisi-tions, a portion of which became amortizable during the year.In 2017, Abbott also recorded a $53 million impairment of anin-process research and development project related to theCardiovascular and Neuromodulation Products segment.

The estimated annual amortization expense for intangible assetsrecorded at December 31, 2018 is approximately $2.0 billion in2019, $2.2 billion in 2020, $2.1 billion in 2021, $2.0 billion in 2022and $2.0 billion in 2023. Amortizable intangible assets are amor-tized over 2 to 20 years (weighted average 12 years).

NOTE 9—RESTRUCTURING PLANS

In 2017 and 2018, Abbott management approved restructuringplans as part of the integration of the acquisitions of St. JudeMedical into the Cardiovascular and Neuromodulation Productssegment, and Alere into the Diagnostic Products segment, inorder to leverage economies of scale and reduce costs. Abbottrecorded employee related severance and other charges ofapproximately $52 million in 2018 and $187 million in 2017.Approximately $5 million in 2018 and 2017 is recorded in Cost ofproducts sold, approximately $10 million in 2018 is recorded inResearch and development, and approximately $37 million in 2018and $182 million in 2017 are recorded in Selling, general andadministrative expense. Abbott also assumed restructuring liabili-ties of approximately $23 million as part of the St Jude Medicaland Alere acquisitions. The following summarizes the activityrelated to these actions and the status of the related accruals:

(in millions)Liabilities assumed as part of business acquisitions $÷«23

Restructuring charges 187

Payments and other adjustments (142)

Accrued balance at December 31, 2017 68



Accrued balance at December 31, 2018 $÷«41

From 2016 to 2018, Abbott management approved plans to stream-line operations in order to reduce costs and improve efficiencies invarious Abbott businesses including the nutritional, established

pharmaceuticals and vascular businesses. Abbott recordedemployee related severance and other charges of approximately$28 million in 2018, $120 million in 2017 and $32 million in 2016.Approximately $10 million in 2018, $7 million in 2017, and$9 million in 2016 are recorded in Cost of products sold, approxi-mately $2 million in 2018, $77 million in 2017 and $5 million in2016 are recorded in Research and development and approxi-mately $16 million in 2018, $36 million in 2017 and $18 million in2016 are recorded in Selling, general and administrative expense.Additional charges of approximately $2 million in 2017 and 2016were recorded primarily for accelerated depreciation.

The following summarizes the activity for these restructurings:

(in millions)Restructuring charges $÷32








Accrued balance at December 31, 2018 $÷70

NOTE 10 — INCENTIVE STOCK PROGRAM

The 2017 Incentive Stock Program authorizes the granting ofnonqualified stock options, restricted stock awards, restrictedstock units, performance awards, foreign benefits and othershare-based awards. Stock options and restricted stock awardsand units comprise the majority of benefits that have beengranted and are currently outstanding under this program and aprior program. In 2018, Abbott granted 5,760,221 stock options,871,331 restricted stock awards and 8,093,546 restricted stockunits under this program.

Under Abbott’s stock incentive programs, the purchase price ofshares under option must be at least equal to the fair market valueof the common stock on the date of grant, and the maximum termof an option is 10 years. Options generally vest equally over threeyears. Restricted stock awards generally vest over 3 years, with nomore than one-third of the award vesting in any one year uponAbbott reaching a minimum return on equity target. Restrictedstock units vest over three years and upon vesting, the recipientreceives one share of Abbott stock for each vested restricted stockunit. The aggregate fair market value of restricted stock awardsand units is recognized as expense over the requisite serviceperiod, which may be shorter than the vesting period if anemployee is retirement eligible. Forfeitures are estimated at thetime of grant. Restricted stock awards and settlement of vestedrestricted stock units are issued out of treasury shares. Abbottgenerally issues new shares for exercises of stock options. As apolicy, Abbott does not purchase its shares relating to its share-based programs.

In April 2017, Abbott’s shareholders authorized the 2017 IncentiveStock Program under which a maximum of 170 million shareswere available for issuance. At December 31, 2018, approximately144 million shares remained available for future issuance.

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In connection with the completion of the St. Jude Medicalacquisition in the first quarter of 2017, unvested St. Jude Medicalstock options and restricted stock units were assumed by Abbottand converted into Abbott options and restricted stock units(as applicable) of substantially equivalent value, in accordancewith the merger agreement. The number of shares underlyingthe converted options was 7,364,571 at a weighted averageexercise price of $30.50. The number of restricted stock unitsconverted was 2,324,500 at a weighted average grant date fairvalue of $37.69.

The number of restricted stock awards and units outstanding andthe weighted-average grant-date fair value at December 31, 2018and December 31, 2017 was 15,952,602 and $52.11 and 15,518,719and $42.82, respectively. The number of restricted stock awardsand units, and the weighted-average grant-date fair value, thatwere granted, vested and lapsed during 2018 were 8,964,877 and$60.10, 7,522,375 and $42.85 and 1,008,619 and $49.27, respectively.The fair market value of restricted stock awards and units vestedin 2018, 2017 and 2016 was $458 million, $348 million and$225 million, respectively.

Options Outstanding Exercisable Options

Shares

WeightedAverage

ExercisePrice

WeightedAverage

RemainingLife (Years) Shares

WeightedAverage

ExercisePrice

WeightedAverage

RemainingLife (Years)

December 31, 2017 35,813,800 $36.85 5.8 22,216,890 $34.54 4.7

Granted 5,760,221 60.02

Exercised (7,690,569) 30.34

Lapsed (808,839) 44.77

December 31, 2018 33,074,613 $42.21 6.3 21,660,783 $38.05 5.3

The aggregate intrinsic value of options outstanding and exercis-able at December 31, 2018 were $996 million and $743 million,respectively. The total intrinsic value of options exercised in 2018,2017 and 2016 was $249 million, $233 million and $98 million,respectively. The total unrecognized compensation cost related toall share-based compensation plans at December 31, 2018amounted to approximately $364 million, which is expected to berecognized over the next three years.

Total non-cash stock compensation expense charged againstincome from continuing operations in 2018, 2017 and 2016 forshare-based plans totaled approximately $477 million, $406 millionand $310 million, respectively, and the tax benefit recognized wasapproximately $185 million, $242 million and $100 million, respec-tively. The decrease in the tax benefit in 2018 primarily relates tothe Tax Cuts and Jobs Act (TCJA), which reduces the U.S. federalcorporate tax rate from 35% to 21%. The increase in the 2017 taxbenefit primarily relates to the $120 million of tax benefit recordedin income after the adoption of ASU 2016-09. Stock compensationcost capitalized as part of inventory is not significant.

The fair value of an option granted in 2018, 2017 and 2016 was$10.93, $6.54, and $4.38, respectively. The fair value of an optiongrant was estimated using the Black-Scholes option-pricing modelwith the following assumptions:

2018 2017 2016Risk-free interest rate 2.7% 2.1% 1.4%

Average life of options (years) 6.0 6.0 6.0

Volatility 19.0% 18.0% 17.0%

Dividend yield 1.9% 2.4% 2.7%

The risk-free interest rate is based on the rates available at the timeof the grant for zero-coupon U.S. government issues with a remain-ing term equal to the option’s expected life. The average life of anoption is based on both historical and projected exercise and lapsingdata. Expected volatility is based on implied volatilities from tradedoptions on Abbott’s stock and historical volatility of Abbott’s stockover the expected life of the option. Dividend yield is based on theoption’s exercise price and annual dividend rate at the time of grant.

NOTE 11—DEBT AND LINES OF CREDIT

The following is a summary of long-term debt at December 31:

(in millions) 2018 20175.125% Notes, due 2019 $ ÷— $ 947

2.35% Notes, due 2019 — 2,850

2.50% Line of credit borrowing due 2019 — 1,150

0.00% Notes, due 2020 1,300 —

2.80% Notes, due 2020 500 500

4.125% Notes, due 2020 — 597

2.00% Notes, due 2020 — 750

2.90% Notes, due 2021 2,850 2,850

2.55% Notes, due 2022 750 750

2.62% Term loan due 2022 — 2,800

0.875% Notes, due 2023 1,303 —

3.25% Notes, due 2023 — 900

3.40% Notes, due 2023 1,050 1,500

3.875% Notes, due 2025 500 500

2.95% Notes, due 2025 1,000 1,000

1.50% Notes, due 2026 1,300 —

3.75% Notes, due 2026 1,700 3,000

4.75% Notes, due 2036 1,650 1,650

6.15% Notes, due 2037 547 547

6.00% Notes, due 2039 515 515

5.30% Notes, due 2040 694 694

4.75% Notes, due 2043 700 700

4.90% Notes, due 2046 3,250 3,250

Unamortized debt issuance costs (102) (119)

Other, including fair value adjustments relatingto interest rate hedge contracts designated as fairvalue hedges (148) (121)

Total, net of current maturities 19,359 27,210

Current maturities of long-term debt 7 508

Total carrying amount $19,366 $27,718

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On February 16, 2018, the board of directors authorized the earlyredemption of up to $5 billion of outstanding long-term notes.Redemptions under this authorization include the following:

• $0.947 billion principal amount of its 5.125% Notes due 2019—redeemed on March 22, 2018

• $1.055 billion of the $2.850 billion principal amount of its2.35% Notes due 2019—redeemed on March 22, 2018

• $1.300 billion of the $1.795 billion outstanding principal amountof its 2.35% Notes due 2019—redeemed on June 22, 2018

• $0.495 billion outstanding principal amount of its 2.35% Notesdue 2019—redeemed on September 28, 2018

On January 25, 2019, Abbott gave notice to the holders of its2.80% Notes due 2020, that it will redeem the $500 million out-standing principal amount of these notes on February 24, 2019.After the redemption of the 2.80% Notes, approximately$700 million of the $5 billion debt redemption authorizationnoted above will remain available.

Abbott incurred a net charge of $14 million related to theMarch 22, 2018 early repayment of debt.

On September 17, 2018, Abbott repaid upon maturity the$500 million aggregate principal amount outstanding of the2.00% Senior Notes due 2018.

On September 27, 2018, Abbott’s wholly owned subsidiary,Abbott Ireland Financing DAC, completed a euro debt offeringof €3.420 billion of long-term debt consisting of €1.140 billion ofnon-interest bearing Senior Notes due 2020 at 99.727% of parvalue; €1.140 billion of 0.875% Senior Notes due 2023 at 99.912%of par value; and €1.140 billion of 1.50% Senior Notes due 2026 at99.723% of par value. The proceeds equated to approximately$4 billion. The notes are guaranteed by Abbott.

On October 28, 2018, Abbott redeemed approximately $4 billionof debt, which included $750 million principal amount of its 2.00%Notes due 2020; $597 million principal amount of its 4.125% Notesdue 2020; $900 million principal amount of its 3.25% Notes due2023; $450 million principal amount of its 3.4% Notes due 2023;and $1.300 billion principal amount of its 3.75% Notes due 2026.These amounts are in addition to the $5 billion authorizationdiscussed above. In conjunction with the redemption, Abbottunwound approximately $1.1 billion in interest rate swaps relatingto the 3.40% Note due in 2023 and the 3.75% Note due in 2026.Abbott incurred a net charge of $153 million related to the earlyrepayment of this debt and the unwinding of related interestrate swaps.

On November 30, 2018, Abbott entered into a Five Year CreditAgreement (Revolving Credit Agreement) and terminated the2014 revolving credit agreement. There were no outstandingborrowings under the 2014 revolving credit agreement at thetime of its termination. The Revolving Credit Agreement providesAbbott with the ability to borrow up to $5 billion on an unsecuredbasis. Any borrowings under the Revolving Credit Agreementwill mature and be payable on November 30, 2023. Any borrow-ings under the Revolving Credit Agreement will bear interest, atAbbott’s option, based on either a base rate or Eurodollar rate,plus an applicable margin based on Abbott’s credit ratings.

In the first quarter of 2017, as part of the acquisition of St. JudeMedical, Abbott’s long-term debt increased due to the assumptionof outstanding debt previously issued by St. Jude Medical. Abbott

exchanged certain St. Jude Medical debt obligations with anaggregate principal amount of approximately $2.9 billion for debtissued by Abbott which consists of:

Principal Amount2.00% Senior Notes due 2018 $473.8 million2.80% Senior Notes due 2020 $483.7 million3.25% Senior Notes due 2023 $818.4 million3.875% Senior Notes due 2025 $490.7 million4.75% Senior Notes due 2043 $639.1 million

Following this exchange, approximately $194.2 million of existingSt. Jude Medical notes remained outstanding across the five seriesof existing notes which have the same coupons and maturities asthose listed above. There were no significant costs associated withthe exchange of debt. In addition, during the first quarter of 2017,Abbott assumed and subsequently repaid approximately$2.8 billion of various St. Jude Medical debt obligations.

On January 4, 2017, as part of funding the cash portion of theSt. Jude Medical acquisition, Abbott borrowed $2.0 billion undera 120-day senior unsecured bridge term loan facility. This facilitywas repaid during the first quarter of 2017.

In 2017, Abbott issued 364-day yen-denominated debt, of which$199 million and $195 million was outstanding at December 31,2018 and 2017, respectively. In 2017, Abbott also paid off a$479 million yen-denominated short-term borrowing duringthe year.

On July 31, 2017, Abbott entered into a 5-year term loan agreementthat allowed Abbott to borrow up to $2.8 billion on an unsecuredbasis for the acquisition of Alere. On October 3, 2017, Abbott bor-rowed $2.8 billion under this term loan agreement to finance theacquisition of Alere, to repay certain indebtedness of Abbott andAlere, and to pay fees and expenses in connection with the acqui-sition. Borrowings under the term loan bore interest based on aEurodollar rate, plus an applicable margin based on Abbott’s creditratings. Abbott paid off this term loan on January 5, 2018.

On October 3, 2017 Abbott borrowed $1.7 billion under its linesof credit. Proceeds from such borrowing were used to finance theacquisition of Alere, to repay certain indebtedness of Abbott andAlere, and to pay fees and expenses in connection with the acqui-sition. These lines of credit were part of a 2014 revolving creditagreement that provided Abbott with the ability to borrow up to$5 billion on an unsecured basis. Advances under the revolvingcredit agreement, including the $1.7 billion borrowing in October2017, were scheduled to mature and be payable on July 10, 2019.The $1.7 billion borrowing bore interest based on a Eurodollarrate, plus an applicable margin based on Abbott’s credit ratings.Prior to October 3, 2017, no amounts were previously drawn underthe revolving credit agreement. In the fourth quarter of 2017,Abbott paid off $550 million on the revolving loan. Abbott paid offthe remaining balance on this revolving loan on January 5, 2018.

In the fourth quarter of 2017, in conjunction with the acquisitionof Alere, Abbott assumed and subsequently repaid $3.0 billion ofAlere’s debt.

In November 2016, Abbott issued $15.1 billion of medium andlong-term debt to primarily fund the cash portion of the acquisi-tion of St. Jude Medical. Abbott issued $2.85 billion of 2.35%Senior Notes due November 22, 2019; $2.85 billion of 2.90% SeniorNotes due November 30, 2021; $1.50 billion of 3.40% Senior Notesdue November 30, 2023; $3.00 billion of 3.75% Senior Notes due

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November 30, 2026; $1.65 billion of 4.75% Senior Notes dueNovember 30, 2036; and $3.25 billion of 4.90% Senior Notes dueNovember 30, 2046. In November 2016, Abbott also entered intointerest rate swap contracts totaling $3.0 billion related to thenew debt, which have the effect of changing Abbott’s obligationfrom a fixed interest rate to a variable interest rate obligationon the related debt instruments.

In February 2016, Abbott obtained a commitment for a 364-daysenior unsecured bridge term loan facility for an amount not toexceed $9 billion in conjunction with its pending acquisition ofAlere. This commitment, which was automatically extended forup to 90 days on January 29, 2017, expired on April 30, 2017 andwas not renewed since Abbott did not need this bridge facilityto finance the Alere acquisition. The fees associated with thebridge facilities were recognized in interest expense.

Principal payments required on long-term debt outstanding atDecember 31, 2018 are $7 million in 2019, $1.8 billion in 2020,$2.9 billion in 2021, $750 million in 2022, $2.3 billion in 2023 and$11.8 billion in 2024 and thereafter.

At December 31, 2018, Abbott’s long-term debt rating was BBB byStandard & Poor’s Corporation and Baa1 by Moody’s. Abbott hasreadily available financial resources, including lines of credit of$5.0 billion which expire in 2023 and support commercial paperborrowing arrangements. Abbott’s weighted-average interest rateon short-term borrowings was 0.4% at December 31, 2018, 0.3%at December 31, 2017 and 0.6% at December 31, 2016.

NOTE 12—FINANCIAL INSTRUMENTS, DERIVATIVES ANDFAIR VALUE MEASURES

Certain Abbott foreign subsidiaries enter into foreign currencyforward exchange contracts to manage exposures to changes inforeign exchange rates for anticipated intercompany purchasesby those subsidiaries whose functional currencies are not the U.S.dollar. These contracts, with gross notional amounts totaling$5.1 billion at December 31, 2018, and $3.3 billion at December 31,2017, are designated as cash flow hedges of the variability of the cashflows due to changes in foreign exchange rates and are recorded atfair value. Accumulated gains and losses as of December 31, 2018will be included in Cost of products sold at the time the productsare sold, generally through the next twelve to eighteen months.

Abbott enters into foreign currency forward exchange contracts tomanage currency exposures for foreign currency denominatedthird-party trade payables and receivables, and for intercompany

loans and trade accounts payable where the receivable or payableis denominated in a currency other than the functional currencyof the entity. For intercompany loans, the contracts require Abbottto sell or buy foreign currencies, primarily European currencies,in exchange for primarily U.S. dollars and European currencies.For intercompany and trade payables and receivables, the currencyexposures are primarily the U.S. dollar and European currencies.At December 31, 2018, 2017 and 2016, Abbott held gross notionalamounts of $13.6 billion, $20.1 billion and $14.9 billion, respectively,of such foreign currency forward exchange contracts.

In March 2017, Abbott repaid its $479 million foreign denominatedshort-term debt which was designated as a hedge of the net invest-ment in a foreign subsidiary. At December 31, 2016, the value ofthis short-term debt was $454 million and changes in the fairvalue of the debt up through the date of repayment due to changesin exchange rates were recorded in Accumulated other compre-hensive income (loss), net of tax.

Abbott is a party to interest rate hedge contracts totaling approxi-mately $2.9 billion at December 31, 2018, $4.0 billion atDecember 31, 2017 and $5.5 billion at December 31, 2016, to manageits exposure to changes in the fair value of fixed-rate debt. Thesecontracts are designated as fair value hedges of the variability ofthe fair value of fixed-rate debt due to changes in the long-termbenchmark interest rates. The effect of the hedge is to change afixed-rate interest obligation to a variable rate for that portion ofthe debt. Abbott records the contracts at fair value and adjusts thecarrying amount of the fixed-rate debt by an offsetting amount.

In October 2018, Abbott unwound approximately $1.1 billion ininterest rate swaps relating to the 3.40% Note due in 2023 and the3.75% Note due in 2026. As a part of the unwinding, Abbott paidapproximately $90 million in cash, which was included in theFinancing Activities section of the Consolidated Statement ofCash Flows in 2018.

In the second quarter of 2017, Abbott unwound approximately$1.5 billion in interest rate swaps relating to the 2.00% Note duein 2020 and the 2.55% Note due in 2022. The proceeds receivedwere not significant.

In December 2016, Abbott unwound approximately $1.5 billionin interest rate swaps relating to the 4.125% Note due in 2020 andthe 5.125% Note due in 2019. As part of the unwinding, Abbottreceived approximately $55 million in cash, which was includedin the Financing Activities section of the Consolidated Statementof Cash Flows in 2016.

The following table summarizes the amounts and location of certain derivative financial instruments as of December 31:

(in millions)Fair Value—Assets Fair Value—Liabilities

2018 2017 Balance Sheet Caption 2018 2017 Balance Sheet Caption

Interest rate swaps designated as fair value hedges $÷«— $÷«—

Deferred income taxesand other assets $100 $÷93

Post-employmentobligations and other

long-term liabilitiesForeign currency forward exchange contracts —

Hedging instruments 81 21

Other prepaid expensesand receivables 44 106 Other accrued liabilities

Others not designated as hedges 33 117

Other prepaid expensesand receivables 51 99 Other accrued liabilities

$114 $138 $195 $298

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The following table summarizes the activity for foreign currencyforward exchange contracts designated as cash flow hedges, debtdesignated as a hedge of net investment in a foreign subsidiary and

certain other derivative financial instruments, as well as theamounts and location of income (expense) and gain (loss) reclassi-fied into income.

(in millions)

Gain (loss) Recognized in OtherComprehensive Income (loss)

Income (expense) and Gain (loss)Reclassified into Income

Income Statement Caption2018 2017 2016 2018 2017 2016Foreign currency forward exchange contractsdesignated as cash flow hedges $73 $(226) $«49 $(114) $(48) $÷«48 Cost of products soldDebt designated as a hedge of net investment in aforeign subsidiary — (25) (15) n/a n/a n/a n/a

Interest rate swaps designated as fair value hedges n/a n/a n/a (97) (24) (127) Interest expense

Losses of $100 million and $64 million, and gains of $8 millionwere recognized in 2018, 2017 and 2016, respectively, related toforeign currency forward exchange contracts not designated ashedges. These amounts are reported in the ConsolidatedStatement of Earnings on the Net foreign exchange (gain) loss line.

The interest rate swaps are designated as fair value hedges of thevariability of the fair value of fixed-rate debt due to changes inthe long-term benchmark interest rates. The hedged debt is

marked to market, offsetting the effect of marking the interestrate swaps to market.

The carrying values and fair values of certain financial instrumentsas of December 31 are shown in the table below. The carrying valuesof all other financial instruments approximate their estimated fairvalues. The counterparties to financial instruments consist ofselect major international financial institutions. Abbott does notexpect any losses from nonperformance by these counterparties.

(in millions)2018 2017

Carrying Value Fair Value Carrying Value Fair ValueLong-term Investment Securities:

Equity securities $ ÷ 856 $ ÷ 856 $ ÷ 797 $ ÷ 797

Other 41 41 86 86

Total Long-term Debt (19,366) (19,871) (27,718) (29,018)

Foreign Currency Forward Exchange Contracts:Receivable position 114 114 138 138

(Payable) position (95) (95) (205) (205)

Interest Rate Hedge Contracts:(Payable) position (100) (100) (93) (93)

The following table summarizes the bases used to measure certain assets and liabilities at fair value on a recurring basis in the balance sheet:

( in millions)Outstanding

Balances

Basis of Fair Value Measurement

Quoted Prices inActive Markets

Significant OtherObservable

Inputs

SignificantUnobservable

Inputs

December 31, 2018:Equity securities $ «320 $320 $ — $÷«—

Foreign currency forward exchange contracts 114 — 114 —

Total Assets $ «434 $320 $ «114 $÷«—

Fair value of hedged long-term debt $2,743 $ «— $2,743 $÷«—

Interest rate swap financial instruments 100 — 100 —


Contingent consideration related to business combinations 71 — — 71

Total Liabilities $3,009 $ «— $2,938 $ 71

December 31, 2017:Equity securities $ «374 $374 $ — $«÷—


Total Assets $ «512 $374 $ «138 $«÷—

Fair value of hedged long-term debt $3,898 $ «— $3,898 $«÷—

Interest rate swap financial instruments 93 — 93 —


Contingent consideration related to business combinations 120 — — 120

Total Liabilities $4,316 $ «— $4,196 $120

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The fair value of foreign currency forward exchange contracts isdetermined using a market approach, which utilizes values forcomparable derivative instruments. The fair value of the debt wasdetermined based on the face value of the debt adjusted for thefair value of the interest rate swaps, which is based on a dis-counted cash flow analysis using significant otherobservable inputs.

Contingent consideration relates to businesses acquired by Abbott.The fair value of the contingent consideration was determinedbased on independent appraisals, at the time of the business acqui-sition, adjusted for the time value of money and other changes infair value. The maximum amount for certain contingent consider-ation is not determinable as it is based on a percent of certainsales. Excluding such contingent consideration, the maximumamount estimated to be due is approximately $480 million, whichis dependent upon attaining certain sales thresholds or based onthe occurrence of certain events, such as regulatory approvals.

NOTE 13—LITIGATION AND ENVIRONMENTAL MATTERS

Abbott has been identified as a potentially responsible party forinvestigation and cleanup costs at a number of locations in theUnited States and Puerto Rico under federal and state remediationlaws and is investigating potential contamination at a number ofcompany-owned locations. Abbott has recorded an estimated

cleanup cost for each site for which management believes Abbotthas a probable loss exposure. No individual site cleanup exposureis expected to exceed $4 million, and the aggregate cleanup expo-sure is not expected to exceed $10 million.

Abbott is involved in various claims and legal proceedings, andAbbott estimates the range of possible loss for its legal proceed-ings and environmental exposures to be from approximately$125 million to $165 million. The recorded accrual balance atDecember 31, 2018 for these proceedings and exposures wasapproximately $145 million. This accrual represents manage-ment’s best estimate of probable loss, as defined by FASB ASCNo. 450, “Contingencies.” Within the next year, legal proceedingsmay occur that may result in a change in the estimated lossaccrued by Abbott. While it is not feasible to predict the outcomeof all such proceedings and exposures with certainty, manage-ment believes that their ultimate disposition should not have amaterial adverse effect on Abbott’s financial position, cash flows,or results of operations.

NOTE 14—POST-EMPLOYMENT BENEFITS

Retirement plans consist of defined benefit, defined contributionand medical and dental plans. Information for Abbott’s majordefined benefit plans and post-employment medical and dentalbenefit plans is as follows:

(in millions)Defined Benefit Plans Medical and Dental Plans2018 2017 2018 2017

Projected benefit obligations, January 1 $ 9,953 $ 8,517 $1,393 $1,274

Service cost — benefits earned during the year 293 283 26 25

Interest cost on projected benefit obligations 308 287 48 45

(Gains) losses, primarily changes in discount rates, plan design changes, law changesand differences between actual and estimated health care costs (1,044) 752 (106) 149

Benefits paid (295) (276) (68) (80)

Other, including foreign currency translation (122) 390 (1) (20)

Projected benefit obligations, December 31 $ 9,093 $ 9,953 $1,292 $1,393

Plan assets at fair value, January 1 $«9,298 $«7,542 $ 419 $ 416

Actual return (loss) on plans’ assets (450) 1,107 (20) 65

Company contributions 114 645 12 12

Benefits paid (295) (276) (60) (74)

Other, including foreign currency translation (114) 280 — —

Plan assets at fair value, December 31 $«8,553 $«9,298 $ 351 $ 419

Projected benefit obligations greater than plan assets, December 31 $ (540) $ (655) $÷(941) $÷(974)

Long-term assets $ ÷583 $ ÷563 $ ÷— $ ÷—

Short-term liabilities (23) (21) (1) (2)

Long-term liabilities (1,100) (1,197) (940) (972)

Net liability $ (540) $ (655) $÷(941) $÷(974)

Amounts Recognized in Accumulated Other Comprehensive Income (loss):Actuarial losses, net $«3,326 $«3,466 $ 361 $ 456

Prior service cost (credits) (2) (9) (163) (208)

Total $«3,324 $«3,457 $ 198 $ 248

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The projected benefit obligations for non-U.S. defined benefitplans was $2.7 billion and $3.0 billion at December 31, 2018 and2017, respectively. The accumulated benefit obligations for alldefined benefit plans were $8.3 billion and $8.9 billion atDecember 31, 2018 and 2017, respectively.

For plans where the accumulated benefit obligations exceededplan assets at December 31, 2018 and 2017, the aggregate

accumulated benefit obligations, the projected benefit obligationsand the aggregate plan assets were as follows:

(in millions) 2018 2017Accumulated benefit obligation $1,265 $1,664

Projected benefit obligation 1,362 1,892

Fair value of plan assets 375 696

The components of the net periodic benefit cost were as follows:

(in millions)Defined Benefit Plans Medical and Dental Plans

2018 2017 2016 2018 2017 2016Service cost — benefits earned during the year $«293 $«283 $«263 $«26 $«25 $«26

Interest cost on projected benefit obligations 308 287 288 48 45 43

Expected return on plans’ assets (680) (613) (565) (33) (33) (35)

Amortization of actuarial losses 205 163 129 33 23 16

Amortization of prior service cost (credits) 1 1 — (45) (45) (45)

Total cost $«127 $«121 $«115 $«29 $«15 $÷«5

In 2017, Abbott recognized a $10 million curtailment gain relatedto the sale of AMO.

Other comprehensive income (loss) for each respective yearincludes the amortization of actuarial losses and prior servicecosts (credits) as noted in the previous table. Other comprehensiveincome (loss) for each respective year also includes: net actuariallosses of $86 million for defined benefit plans and a gain of$53 million for medical and dental plans in 2018; net actuariallosses of $247 million for defined benefit plans and $97 millionfor medical and dental plans in 2017; net actuarial losses of$571 million for defined benefit plans and $20 million for medicaland dental plans in 2016.

The pretax amount of actuarial losses and prior service cost(credits) included in Accumulated other comprehensive income(loss) at December 31, 2018 that is expected to be recognized inthe net periodic benefit cost in 2019 is $130 million and $1 millionof expense, respectively, for defined benefit pension plans and$24 million of expense and $32 million of income, respectively,for medical and dental plans.

The weighted average assumptions used to determine benefitobligations for defined benefit plans and medical and dental plansare as follows:

2018 2017 2016Discount rate 4.0% 3.4% 3.9%

Expected aggregate average long-term change in compensation 4.3% 4.4% 4.3%

The weighted average assumptions used to determine the net costfor defined benefit plans and medical and dental plans are as follows:

2018 2017 2016Discount rate 3.4% 3.9% 4.3%

Expected return on plan assets 7.7% 7.6% 7.6%

Expected aggregate average long-term change in compensation 4.4% 4.3% 4.3%

The assumed health care cost trend rates for medical and dentalplans at December 31 were as follows:

2018 2017 2016Health care cost trend rate assumedfor the next year 9% 9% 8%

Rate that the cost trend rategradually declines to 5% 5% 5%

Year that rate reaches the assumedultimate rate 2025 2027 2027

The discount rates used to measure liabilities were determinedbased on high-quality fixed income securities that match theduration of the expected retiree benefits. The health care costtrend rates represent Abbott’s expected annual rates of change inthe cost of health care benefits and are forward projections ofhealth care costs as of the measurement date. A one-percentagepoint increase/(decrease) in the assumed health care cost trendrate would increase/(decrease) the accumulated post-employmentbenefit obligations as of December 31, 2018, by $157 million/$(131) million, and the total of the service and interest cost com-ponents of net post-employment health care cost for the year thenended by approximately $12 million/$(10) million.

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The following table summarizes the basis used to measure the defined benefit and medical and dental plan assets at fair value:

(in millions)Outstanding

Balances

Basis of Fair Value MeasurementQuoted

Prices inActive Markets

SignificantOther Observable

Inputs

SignificantUnobservable

InputsMeasured

at NAV (k)

December 31, 2018:Equities:

U.S. large cap (a) $2,168 $1,319 $ ÷ 5 $— $ «844

U.S. mid and small cap (b) 515 226 — — 289

International (c) 1,671 370 — — 1,301

Fixed income securities:U.S. government securities (d) 476 51 269 — 156

Corporate debt instruments (e) 1,150 269 701 — 180

Non-U.S. government securities (f ) 405 5 — — 400

Other (g) 199 15 55 — 129

Absolute return funds (h) 1,684 448 — — 1,236

Commodities (i) 59 — — 4 55

Cash and Cash Equivalents 192 123 — — 69

Other ( j) 385 11 — — 374

$8,904 $2,837 $1,030 $ 4 $5,033

December 31, 2017:Equities:

U.S. large cap (a) $2,506 $1,600 $ — $— $ 906

U.S. mid and small cap (b) 670 243 — — 427

International (c) 1,937 448 — — 1,489

Fixed income securities:U.S. government securities (d) 510 11 286 — 213

Corporate debt instruments (e) 930 107 411 — 412

Non-U.S. government securities (f ) 625 222 — — 403

Other (g) 216 93 27 — 96

Absolute return funds (h) 1,814 135 — — 1,679

Commodities (i) 60 — — 4 56

Cash and Cash Equivalents 178 12 — — 166

Other ( j) 271 7 — — 264

$9,717 $2,878 $ «724 $ 4 $6,111

(a) A mix of index funds and actively managed equity accounts that are benchmarked to various large cap indices.(b) A mix of index funds and actively managed equity accounts that are benchmarked to various mid and small cap indices.(c) A mix of index funds and actively managed pooled investment funds that are benchmarked to various non-U.S. equity indices in both developed and emerging markets.(d) A mix of index funds and actively managed accounts that are benchmarked to various U.S. government bond indices.(e) A mix of index funds and actively managed accounts that are benchmarked to various corporate bond indices.(f ) Primarily United Kingdom, Japan and Irish government-issued bonds. In 2017, included Netherlands bonds.(g) Primarily asset backed securities and an actively managed, diversified fixed income vehicle benchmarked to the one-month Libor / Euribor.(h) Primarily funds invested by managers that have a global mandate with the flexibility to allocate capital broadly across a wide range of asset classes and strategies including, but not limited to

equities, fixed income, commodities, interest rate futures, currencies and other securities to outperform an agreed upon benchmark with specific return and volatility targets.(i) Primarily investments in liquid commodity future contracts and private energy funds.( j) Primarily investments in private funds, such as private equity, private credit and private real estate.(k) In accordance with ASU 2015-07, investments measured at fair value using the NAV practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in

this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the consolidated balance sheet.

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Equities that are valued using quoted prices are valued at thepublished market prices. Equities in a common collective trust ora registered investment company that are valued using significantother observable inputs are valued at the net asset value (NAV)provided by the fund administrator. The NAV is based on the valueof the underlying assets owned by the fund minus its liabilities.For approximately half of these funds, investments may beredeemed once per month, with a required 7 to 30 day noticeperiod. For the remaining funds, daily redemption of an invest-ment is allowed. Fixed income securities that are valued usingsignificant other observable inputs are valued at prices obtainedfrom independent financial service industry recognized vendors.Abbott did not have any unfunded commitments related to fixedincome funds at December 31, 2018 and 2017. For the majority ofthese funds, investments may be redeemed either weekly ormonthly, with a required 2 to 14 day notice period. For the remain-ing funds, investments may be generally redeemed daily.

Absolute return funds and commodities are valued at the NAVprovided by the fund administrator. All private funds are valuedat the NAV provided by the fund on a one-quarter lag adjusted forknown cash flows and significant events through the reportingdate. Abbott did not have any unfunded commitments related toabsolute return funds at December 31, 2018 and 2017. Investmentsin these funds may be generally redeemed monthly or quarterlywith required notice periods ranging from 5 to 45 days. Forapproximately $100 million of the absolute return funds, redemp-tions are subject to a 25 percent gate. For commodities,investments in the private energy funds cannot be redeemed butthe funds will make distributions through liquidation. The esti-mate of the liquidation period for each fund ranges from 2019 to2022. Abbott’s unfunded commitments in these funds as ofDecember 31, 2018 and 2017 were not significant. Investments inthe private funds (excluding private energy funds) cannot beredeemed but the funds will make distributions through liquida-tion. The estimate of the liquidation period for each fund rangesfrom 2019 to 2028. Abbott’s unfunded commitment in these fundswas $518 million and $489 million as of December 31, 2018 and2017, respectively.

The investment mix of equity securities, fixed income and otherasset allocation strategies is based upon achieving a desired return,as well as balancing higher return, more volatile equity securitieswith lower return, less volatile fixed income securities. Investmentallocations are made across a range of markets, industry sectors,capitalization sizes, and in the case of fixed income securities,maturities and credit quality. The plans do not directly hold anysecurities of Abbott. There are no known significant concentra-tions of risk in the plans’ assets. Abbott’s medical and dental plans’assets are invested in a similar mix as the pension plan assets. Theactual asset allocation percentages at year end are consistent withthe company’s targeted asset allocation percentages.

The plans’ expected return on assets, as shown above is based onmanagement’s expectations of long-term average rates of return tobe achieved by the underlying investment portfolios. In establishingthis assumption, management considers historical and expectedreturns for the asset classes in which the plans are invested, aswell as current economic and capital market conditions.

Abbott funds its domestic pension plans according to IRS fundinglimitations. International pension plans are funded according tosimilar regulations. Abbott funded $114 million in 2018 and$645 million in 2017 to defined pension plans. Abbott expects tocontribute approximately $380 million to its pension plans in 2019.

Total benefit payments expected to be paid to participants, whichincludes payments funded from company assets, as well as paidfrom the plans, are as follows:

(in millions)Defined

Benefit PlansMedical andDental Plans

2019 $ «306 $ 74

2020 317 77

2021 333 78

2022 351 79

2023 369 80

2024 to 2028 2,160 418

The Abbott Stock Retirement Plan is the principal defined contribu-tion plan. Abbott’s contributions to this plan were $146 million in2018, $79 million in 2017 and $83 million in 2016. The 2018 contri-butions include amounts related to participants of the St. JudeMedical Retirement Plan which was terminated in January 2018.

NOTE 15—TAXES ON EARNINGS FROM CONTINUINGOPERATIONS

Taxes on earnings from continuing operations reflect the annualeffective rates, including charges for interest and penalties.Deferred income taxes reflect the tax consequences on futureyears of differences between the tax bases of assets and liabilitiesand their financial reporting amounts.

The Tax Cuts and Jobs Act (TCJA) was enacted in the U.S. onDecember 22, 2017. The TCJA reduces the U.S. federal corporatetax rate from 35% to 21%, requires companies to pay a one-timetransition tax on earnings of certain foreign subsidiaries that werepreviously tax deferred and creates new taxes on certain foreignsourced earnings. As of December 31, 2018, Abbott has completedits accounting for all of the enactment date income tax effects ofthe TCJA. If additional regulations issued by the U.S. Departmentof the Treasury after December 31, 2018 result in a change injudgment, the effect of such regulations will be accounted for inthe period in which the regulations are finalized.

Effective for fiscal years beginning after December 31, 2017, theTCJA subjects taxpayers to tax on global intangible low-taxedincome (GILTI) earned by certain foreign subsidiaries. In January2018, the FASB staff provided guidance that an entity may makean accounting policy election to either recognize deferred taxesrelated to items that will give rise to GILTI in future years orprovide for the tax expense related to GILTI in the year that the taxis incurred. Abbott has elected to treat the GILTI tax as a periodexpense and provide for the tax in the year that the tax is incurred.

In the fourth quarter of 2017, Abbott recorded an estimate of nettax expense of $1.46 billion for the impact of the TCJA, which wasincluded in Taxes on Earnings from Continuing Operations in theConsolidated Statement of Earnings. The estimate was provisional

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and included a charge of approximately $2.89 billion for thetransition tax, partially offset by a net benefit of approximately$1.42 billion for the remeasurement of deferred tax assets andliabilities, and a net benefit of approximately $10 million relatedto certain other impacts of the TCJA. In 2018, Abbott recorded$130 million of additional tax expense which increased the finaltax expense related to the TCJA to $1.59 billion. The $130 millionof additional tax expense reflects a $120 million increase in thetransition tax from $2.89 billion to $3.01 billion and a $10 millionreduction in the net benefit related to the remeasurement ofdeferred tax assets and liabilities.

The one-time transition tax is based on Abbott’s total post-1986earnings and profits (E&P) that were previously deferred from U.S.income taxes. The tax computation also requires the determina-tion of the amount of post-1986 E&P considered held in cash andother specified assets. As of December 31, 2018, the remainingbalance of Abbott’s transition tax obligation is approximately$1.58 billion, which will be paid over the next eight years asallowed by the TCJA.

In 2018, taxes on earnings from continuing operations includes$98 million of net tax expense related to the settlement of Abbott’s2014-2016 federal income tax audit in the U.S., partial settlementof the former St. Jude Medical consolidated group’s 2014 and 2015federal income tax returns in the U.S. and audit settlements invarious countries. In 2017, taxes on earnings from continuingoperations included $435 million of tax expense related to the gainon the sale of the AMO business. In 2016, taxes on earnings fromcontinuing operations included the impact of a net tax benefit ofapproximately $225 million, primarily as a result of the resolutionof various tax positions from prior years, partially offset by theunfavorable impact of non-deductible foreign exchange lossesrelated to Venezuela and the adjustment of the Mylan N.V. equityinvestment, as well as the recognition of deferred taxes associatedwith the then pending sale of AMO.

Undistributed foreign earnings remain indefinitely reinvestedin foreign operations. Determining the amount of unrecognizeddeferred tax liability related to any remaining undistributedforeign earnings not subject to the transition tax and additionaloutside basis difference in its foreign entities is not practicable.In the U.S., Abbott’s federal income tax returns through 2016 aresettled except for the federal income tax returns of the formerAlere consolidated group which are settled through 2014 and theformer St. Jude Medical consolidated group which are settledthrough 2013. There are numerous other income tax jurisdictionsfor which tax returns are not yet settled, none of which areindividually significant. Reserves for interest and penalties arenot significant.

Earnings from continuing operations before taxes, and the relatedprovisions for taxes on earnings from continuing operations, wereas follows:

(in millions) 2018 2017 2016Earnings From ContinuingOperations Before Taxes:Domestic $ (430) $ «308 $ «306

Foreign 3,303 1,923 1,107

Total $2,873 $2,231 $1,413

Taxes on Earnings FromContinuing Operations:Current:Domestic $ (812) $2,260 $ ÷«71

Foreign 606 508 406

Total current (206) 2,768 477

Deferred:Domestic 832 (679) (147)

Foreign (87) (211) 20

Total deferred 745 (890) (127)

Total $ «539 $1,878 $ «350

Differences between the effective income tax rate and the U.S.statutory tax rate were as follows:

2018 2017 2016Statutory tax rate on earnings fromcontinuing operations 21.0% 35.0% 35.0%

Impact of foreign operations (5.4) (16.3) (17.8)

Impact of TCJA and otherrelated items 6.3 65.5 —

Foreign-derived intangibleincome benefit (1.9) — —

Domestic impairment loss (2.1) — —

Excess tax benefits related tostock compensation (3.1) (5.4) —

Research tax credit (1.8) (1.9) (1.8)

Resolution of certain tax positionspertaining to prior years 3.4 — (16.1)

Mylan share adjustment — — 25.5

State taxes, net of federal benefit 0.4 0.5 (1.3)

Federal tax cost on sale ofMylan N.V. shares — 3.4 —

All other, net 2.0 3.4 1.3

Effective tax rate on earnings fromcontinuing operations 18.8% 84.2% 24.8%

Impact of foreign operations is primarily derived from operationsin Puerto Rico, Switzerland, Ireland, the Netherlands, Costa Rica,and Singapore.

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The tax effect of the differences that give rise to deferred taxassets and liabilities were as follows:

(in millions) 2018 2017Deferred tax assets:

Compensation and employee benefits $ ÷829 $ ÷881

Other, primarily reserves not currentlydeductible, and NOL’s and credit carryforwards 2,546 2,857

Trade receivable reserves 196 185

Inventory reserves 97 152

Deferred intercompany profit 203 249

Total deferred tax assets before valuationallowance 3,871 4,324

Valuation allowance (1,363) (1,355)

Total deferred tax assets 2,508 2,969

Deferred tax liabilities:Depreciation (226) (200)

Other, primarily the excess of book basis overtax basis of intangible assets (3,557) (3,385)

Total deferred tax liabilities (3,783) (3,585)

Total net deferred tax assets (liabilities) $(1,275) $ (616)

Abbott has incurred losses in a foreign jurisdiction where realiza-tion of the future economic benefit is so remote that the benefit isnot reflected as a deferred tax asset.

The following table summarizes the gross amounts of unrecog-nized tax benefits without regard to reduction in tax liabilities oradditions to deferred tax assets and liabilities if such unrecognizedtax benefits were settled:

(in millions) 2018 2017January 1 $1,440 $ «972

Decrease in tax positions due to acquisitions (13) —

Increase in tax positions due to acquisitions — 479

Increase due to current year tax positions 164 187

Increase due to prior year tax positions 235 76

Decrease due to prior year tax positions (611) (176)

Settlements (91) (57)

Lapse of statute (4) (41)

December 31 $1,120 $1,440

The total amount of unrecognized tax benefits that, if recognized,would impact the effective tax rate is approximately $1.02 billion.Abbott believes that it is reasonably possible that the recordedamount of gross unrecognized tax benefits may decrease within arange of $125 million to $350 million, including cash adjustments,within the next twelve months as a result of concluding variousdomestic and international tax matters.

NOTE 16—SEGMENT AND GEOGRAPHIC AREA INFORMATION

Abbott’s principal business is the discovery, development, manu-facture and sale of a broad line of health care products. Abbott’sproducts are generally sold directly to retailers, wholesalers,hospitals, health care facilities, laboratories, physicians’ offices andgovernment agencies throughout the world. On January 4, 2017,Abbott completed the acquisition of St. Jude Medical. Beginningwith the first quarter of 2017, Abbott’s cardiovascular and neuro-modulation business includes the results of its historical VascularProducts segment and the results of the businesses acquired fromSt. Jude Medical from the date of acquisition. On October 3, 2017,Abbott completed the acquisition of Alere. Beginning with thefourth quarter of 2017, Abbott’s Diagnostic Products reportablesegment includes the results of Alere from the date of acquisition.

Abbott’s reportable segments are as follows:

Established Pharmaceutical Products—International sales of abroad line of branded generic pharmaceutical products.

Nutritional Products—Worldwide sales of a broad line of adult andpediatric nutritional products.

Diagnostic Products—Worldwide sales of diagnostic systems andtests for blood banks, hospitals, commercial laboratories andalternate-care testing sites. For segment reporting purposes, theCore Laboratories Diagnostics, Rapid Diagnostics, MolecularDiagnostics and Point of Care divisions are aggregated andreported as the Diagnostic Products segment. Rapid Diagnostics isthe business acquired from Alere.

Cardiovascular and Neuromodulation Products—Worldwide salesof rhythm management, electrophysiology, heart failure, vascular,structural heart and neuromodulation products. For segmentreporting purposes, the Cardiac Arrhythmias & Heart Failure,Vascular, Neuromodulation and Structural Heart divisions areaggregated and reported as the Cardiovascular andNeuromodulation segment.

Non-reportable segments include AMO through the date of saleand Diabetes Care.

Abbott’s underlying accounting records are maintained on a legalentity basis for government and public reporting requirements.Segment disclosures are on a performance basis consistent withinternal management reporting. The cost of some corporate func-tions and the cost of certain employee benefits are charged tosegments at predetermined rates that approximate cost.Remaining costs, if any, are not allocated to segments. In addition,intangible asset amortization is not allocated to operating seg-ments, and intangible assets and goodwill are not included in themeasure of each segment’s assets.

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The following segment information has been prepared in accor-dance with the internal accounting policies of Abbott, as describedabove, and are not presented in accordance with generally acceptedaccounting principles applied to the consolidated financial statements.

(in millions)

Net Sales to ExternalCustomers (a) Operating Earnings (a)

2018 2017 2016 2018 2017 2016EstablishedPharmaceuticals $ 4,422 $ 4,287 $ 3,859 $ «894 $ «848 $ «723

Nutritionals 7,229 6,925 6,899 1,652 1,589 1,660

Diagnostics 7,495 5,616 4,813 1,868 1,468 1,194

Cardiovascular andNeuromodulation 9,437 8,911 2,896 2,990 2,720 1,037

Total ReportableSegments 28,583 25,739 18,467 $7,404 $6,625 $4,614

Other 1,995 1,651 2,386

Total $30,578 $27,390 $20,853

(a) Net sales were unfavorably affected by the relatively stronger U.S. dollar in 2018 and 2016.Operating earnings were unfavorably affected by the impact of foreign exchange in 2018,2017 and 2016.

(in millions) 2018 2017 2016Total Reportable SegmentOperating Earnings $ 7,404 $ 6,625 $ 4,614

Corporate functions and benefitplans costs (618) (506) (411)

Non-reportable segments 510 306 304

Net interest expense (721) (780) (332)

Loss on extinguishment of debt (167) - -

Share-based compensation (477) (406) (310)

Amortization of intangible assets (2,178) (1,975) (550)

Other, net (b) (880) (1,033) (1,902)

Earnings from ContinuingOperations before Taxes $ 2,873 $ 2,231 $ 1,413

(b) Other, net includes inventory step-up amortization, integration costs associated with theacquisition of St. Jude Medical and Alere, and restructuring charges in 2018. In 2017,Other, net includes inventory step-up amortization, integration costs associated with theacquisition of St. Jude Medical and Alere, and restructuring charges, partially offset by thegain on the sale of the AMO business. In 2016, Other, net includes the $947 millionadjustment of the Mylan equity investment and $480 million of foreign currencyexchange loss related to operations in Venezuela. Charges for restructuring actions andother cost reduction initiatives were approximately $153 million in 2018, $384 million in2017 and $167 million in 2016.

(in millions)Depreciation

Additions to Property, Plantand Equipment (c) Total Assets

2018 2017 2016 2018 2017 2016 2018 2017 2016Established Pharmaceuticals $ ÷«92 $ ÷«90 $ 71 $ «131 $ «181 $ «150 $ 2,664 $ 2,728 $ 2,486

Nutritionals 150 164 160 86 147 199 3,071 3,160 3,189

Diagnostics 397 300 267 609 374 379 4,464 4,226 2,945

Cardiovascular andNeuromodulation 248 298 69 183 206 23 4,910 5,074 1,425

Total Reportable Segments 887 852 567 1,009 908 751 $15,109 $15,188 $10,045

Other 213 194 236 385 227 370

Total $1,100 $1,046 $803 $1,394 $1,135 $1,121

(c) Amounts exclude property, plant and equipment acquired through business acquisitions.

(in millions) 2018 2017 2016Total Reportable Segment Assets $15,109 $15,188 $10,045

Cash and investments 4,983 10,493 21,722

Non-reportable segments 991 740 1,280

Goodwill and intangible assets (d) 42,196 45,493 12,222

All other (d) 3,894 4,336 7,397

Total Assets $67,173 $76,250 $52,666

(d) Goodwill and intangible assets related to AMO are included in the All other line in 2016.

(in millions)

Net Sales toExternal Customers (e)

2018 2017 2016United States $10,839 $ 9,673 $ 6,486

China 2,311 2,146 1,728

Germany 1,619 1,366 1,044

India 1,333 1,237 1,114

Japan 1,326 1,255 924

Switzerland 1,005 841 766

The Netherlands 930 929 830

All Other Countries 11,215 9,943 7,961

Consolidated $30,578 $27,390 $20,853

(e) Sales by country are based on the country that sold the product.

Long-lived assets on a geographic basis primarily include property,plant and equipment. It excludes goodwill, intangible assets,deferred tax assets, and financial instruments. At December 31,2018 and 2017, long-lived assets totaled $8.7 billion and$8.9 billion, respectively, and in the United States such assetstotaled $4.3 billion and $4.5 billion, respectively. Long-lived assetbalances associated with other countries were not material on anindividual country basis in either of the two years.

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NOTE 17 — QUARTERLY RESULTS (UNAUDITED)

(in millions except per share data) 2018 2017

First QuarterContinuing Operations:

Net Sales $7,390 $6,335

Gross Profit 3,739 2,751

Earnings from Continuing Operations 409 386

Basic Earnings per Common Share 0.23 0.22

Diluted Earnings per Common Share 0.23 0.22

Net Earnings 418 419

Basic Earnings Per Common Share (a) 0.24 0.24

Diluted Earnings Per Common Share (a) 0.23 0.24

Market Price Per Share-High 64.60 45.84

Market Price Per Share-Low 55.58 38.34

Second QuarterContinuing Operations:

Net Sales $7,767 $6,637










Third QuarterContinuing Operations:

Net Sales $7,656 $6,829










Fourth QuarterContinuing Operations:

Net Sales $7,765 $7,589


Earnings (Loss) from Continuing Operations 655 (864)

Basic Earnings (Loss) per Common Share 0.37 (0.50)

Diluted Earnings (Loss) per Common Share 0.37 (0.50)

Net Earnings (Loss) 654 (828)

Basic Earnings (Loss) Per Common Share (a) 0.37 (0.48)

Diluted Earnings (Loss) Per Common Share (a) 0.37 (0.48)



(a) The sum of the four quarters of earnings per share for 2018 and 2017 may not add to the fullyear earnings per share amount due to rounding and/or the use of quarter-to-date weightedaverage shares to calculate the earnings per share amount in each respective quarter.

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R E P O R T O F I N D E P E N D E N T R E G I S T E R E DP U B L I C A C C O U N T I N G F I R M

M A N A G E M E N T R E P O R T O N I N T E R N A LC O N T R O L O V E R F I N A N C I A L R E P O R T I N G

The management of Abbott Laboratories is responsible for estab-lishing and maintaining adequate internal control over financialreporting. Abbott’s internal control system was designed to pro-vide reasonable assurance to the company’s management andboard of directors regarding the preparation and fair presentationof published financial statements.

All internal control systems, no matter how well designed, haveinherent limitations. Therefore, even those systems determined tobe effective can provide only reasonable assurance with respect tofinancial statement preparation and presentation.

Abbott’s management assessed the effectiveness of the company’sinternal control over financial reporting as of December 31, 2018.In making this assessment, it used the criteria set forth in InternalControl—Integrated Framework (2013) issued by the Committee ofSponsoring Organizations of the Treadway Commission. Based onour assessment, we believe that, as of December 31, 2018, thecompany’s internal control over financial reporting was effectivebased on those criteria.

Abbott’s independent registered public accounting firm has issuedan audit report on their assessment of the effectiveness of thecompany’s internal control over financial reporting. This reportappears on page 61.

Miles D. WhiteChairman of the Board and Chief Executive Officer

Brian B. YoorExecutive Vice President, Finance and Chief Financial Officer

Robert E. FunckSenior Vice President, Finance and Controller

February 22, 2019

To the Shareholders and Board of Directors of Abbott Laboratories

OPINION ON THE FINANCIAL STATEMENTS

We have audited the accompanying consolidated balance sheetsof Abbott Laboratories and subsidiaries (the Company) as ofDecember 31, 2018 and 2017, the related consolidated statementsof earnings, comprehensive income, shareholders’ investmentand cash flows for each of the three years in the period endedDecember 31, 2018, and the related notes (collectively referred toas the “consolidated financial statements”). In our opinion, theconsolidated financial statements present fairly, in all materialrespects, the financial position of the Company as of December 31,2018 and 2017, and the results of its operations and its cash flowsfor each of the three years in the period ended December 31, 2018,in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of thePublic Company Accounting Oversight Board (United States)(PCAOB), the Company’s internal control over financial reportingas of December 31, 2018, based on criteria established in InternalControl—Integrated Framework issued by the Committee ofSponsoring Organizations of the Treadway Commission (2013framework), and our report dated February 22, 2019 expressedan unqualified opinion thereon.

BASIS FOR OPINION

These financial statements are the responsibility of the Company’smanagement. Our responsibility is to express an opinion onthe Company’s financial statements based on our audits. We are apublic accounting firm registered with the PCAOB and are requiredto be independent with respect to the Company in accordance withthe U.S. federal securities laws and the applicable rules and regula-tions of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of thePCAOB. Those standards require that we plan and perform theaudit to obtain reasonable assurance about whether the financialstatements are free of material misstatement, whether due toerror or fraud. Our audits included performing procedures toassess the risks of material misstatement of the financial state-ments, whether due to error or fraud, and performing proceduresthat respond to those risks. Such procedures included examining,on a test basis, evidence regarding the amounts and disclosures inthe financial statements. Our audits also included evaluating theaccounting principles used and significant estimates made bymanagement, as well as evaluating the overall presentation of thefinancial statements. We believe that our audits provide a reason-able basis for our opinion.

/s/ Ernst & Young LLP

We have served as the Company’s auditor since 2013.

Chicago, IllinoisFebruary 22, 2019

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R E P O R T O F I N D E P E N D E N T R E G I S T E R E DP U B L I C A C C O U N T I N G F I R M

To the Shareholders and Board of Directors of Abbott Laboratories

OPINION ON INTERNAL CONTROL OVERFINANCIAL REPORTING

We have audited Abbott Laboratories and subsidiaries’ internalcontrol over financial reporting as of December 31, 2018, based oncriteria established in Internal Control—Integrated Frameworkissued by the Committee of Sponsoring Organizations of theTreadway Commission (2013 framework) (the COSO criteria). Inour opinion, Abbott Laboratories and subsidiaries (the Company)maintained, in all material respects, effective internal control overfinancial reporting as of December 31, 2018, based on the COSOcriteria.

We also have audited, in accordance with the standards of thePublic Company Accounting Oversight Board (United States)(PCAOB), the consolidated balance sheets of the Company as ofDecember 31, 2018 and 2017, the related consolidated statementsof earnings, comprehensive income, shareholders’ investmentand cash flows for each of the three years in the period endedDecember 31, 2018, and the related notes of the Company andour report dated February 22, 2019 expressed an unqualifiedopinion thereon.

BASIS FOR OPINION

The Company’s management is responsible for maintainingeffective internal control over financial reporting and for itsassessment of the effectiveness of internal control over financialreporting included in the accompanying Management Report onInternal Control Over Financial Reporting. Our responsibility isto express an opinion on the Company’s internal control overfinancial reporting based on our audit. We are a public accountingfirm registered with the PCAOB and are required to be indepen-dent with respect to the Company in accordance with the U.S.federal securities laws and the applicable rules and regulationsof the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards ofthe PCAOB. Those standards require that we plan and performthe audit to obtain reasonable assurance about whether effectiveinternal control over financial reporting was maintained in allmaterial respects.

Our audit included obtaining an understanding of internal con-trol over financial reporting, assessing the risk that a materialweakness exists, testing and evaluating the design and operatingeffectiveness of internal control based on the assessed risk, andperforming such other procedures as we considered necessary inthe circumstances. We believe that our audit provides a reasonablebasis for our opinion.

DEFINITION AND LIMITATIONS OF INTERNAL CONTROLOVER FINANCIAL REPORTING

A company’s internal control over financial reporting is a processdesigned to provide reasonable assurance regarding the reliabilityof financial reporting and the preparation of financial statementsfor external purposes in accordance with generally acceptedaccounting principles. A company’s internal control over financialreporting includes those policies and procedures that (1) pertainto the maintenance of records that, in reasonable detail, accuratelyand fairly reflect the transactions and dispositions of the assets ofthe company; (2) provide reasonable assurance that transactionsare recorded as necessary to permit preparation of financial state-ments in accordance with generally accepted accounting principles,and that receipts and expenditures of the company are being madeonly in accordance with authorizations of management and direc-tors of the company; and (3) provide reasonable assuranceregarding prevention or timely detection of unauthorized acquisi-tion, use, or disposition of the company’s assets that could have amaterial effect on the financial statements.

Because of its inherent limitations, internal control over financialreporting may not prevent or detect misstatements. Also, projec-tions of any evaluation of effectiveness to future periods aresubject to the risk that controls may become inadequate becauseof changes in conditions, or that the degree of compliance withthe policies or procedures may deteriorate.

/s/ Ernst & Young LLP

Chicago, IllinoisFebruary 22, 2019

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MARKET PRICE SENSITIVE INVESTMENTS

The fair value of equity securities held by Abbott with a readilydeterminable fair value was approximately $13 million and$11 million as of December 31, 2018 and 2017, respectively. Theseequity securities are subject to potential changes in fair value.A hypothetical 20 percent decrease in the share prices of theseinvestments would decrease their fair value at December 31, 2018by approximately $3 million. Changes in the fair value of thesesecurities are recorded in earnings. The fair value of investmentsin mutual funds that are held in a rabbi trust for the purpose ofpaying benefits under a deferred compensation plan was approxi-mately $307 million and $363 million as of December 31, 2018 and2017, respectively. Changes in the fair value of these investmentsare recorded in earnings.

NON-PUBLICLY TRADED EQUITY SECURITIES

Abbott holds equity securities that are not traded on publicstock exchanges. The carrying value of these investments was$211 million and $228 million as of December 31, 2018 and 2017,respectively. No individual investment is recorded at a value inexcess of $61 million. Abbott measures these investments at costminus impairment, if any, plus or minus changes resulting fromobservable price changes in orderly transactions for the identicalor a similar investment of the same issuer.

INTEREST RATE SENSITIVE FINANCIAL INSTRUMENTS

At December 31, 2018 and 2017, Abbott had interest rate hedgecontracts totaling $2.9 billion and $4.0 billion, respectively, tomanage its exposure to changes in the fair value of debt. The effectof these hedges is to change the fixed interest rate to a variablerate for the portion of the debt that is hedged. Abbott does not usederivative financial instruments, such as interest rate swaps, tomanage its exposure to changes in interest rates for its investmentsecurities. The fair value of long-term debt at December 31, 2018and 2017 amounted to $19.9 billion and $29.0 billion, respectively(average interest rates of 3.5% and 3.6% as of December 31, 2018and 2017, respectively) with maturities through 2046. AtDecember 31, 2018 and 2017, the fair value of current and long-term investment securities amounted to approximately $1.1 billion.

F I N A N C I A L I N S T R U M E N T S A N D R I S K M A N A G E M E N T

A hypothetical 100-basis point change in the interest rates wouldnot have a material effect on cash flows, income or fair values. (A100-basis point change is believed to be a reasonably possiblenear-term change in rates.)

FOREIGN CURRENCY SENSITIVE FINANCIAL INSTRUMENTS

Certain Abbott foreign subsidiaries enter into foreign currencyforward exchange contracts to manage exposures to changes inforeign exchange rates for anticipated intercompany purchasesby those subsidiaries whose functional currencies are not the U.S.dollar. These contracts are designated as cash flow hedges of thevariability of the cash flows due to changes in foreign currencyexchange rates and are marked-to-market with the resulting gainsor losses reflected in Accumulated other comprehensive income(loss). Gains or losses will be included in Cost of products sold atthe time the products are sold, generally within the next twelveto eighteen months. At December 31, 2018 and 2017, Abbott held$5.1 billion and $3.3 billion, respectively, of such contracts.Contracts held at December 31, 2018 will mature in 2019 or 2020depending upon the contract. Contracts held at December 31, 2017matured in 2018 or will mature in 2019 depending upon thecontract.

Abbott enters into foreign currency forward exchange contractsto manage its exposure to foreign currency denominated inter-company loans and trade payables and third-party trade payablesand receivables. The contracts are marked-to-market, and result-ing gains or losses are reflected in income and are generally offsetby losses or gains on the foreign currency exposure being man-aged. At December 31, 2018 and 2017, Abbott held $13.6 billion and$20.1 billion, respectively, of such contracts, which mature in thenext 24 months.

In March 2017, Abbott repaid its $479 million foreign denominatedshort-term debt which was designated as a hedge of the net invest-ment in a foreign subsidiary. At December 31, 2016, the value ofthis short-term debt was $454 million, and changes in the fairvalue of the debt up through the date of repayment due to changesin exchange rates were recorded in Accumulated other compre-hensive income (loss), net of tax.

The following table reflects the total foreign currency forward contracts outstanding at December 31, 2018 and 2017:

(dollars in millions)

2018 2017

ContractAmount

WeightedAverage

ExchangeRate

Fair andCarrying

ValueReceivable/

(Payable)ContractAmount

WeightedAverage

ExchangeRate

Fair andCarrying

ValueReceivable/

(Payable)Primarily U.S. Dollars to be exchanged forthe following currencies:Euro $11,630 1.1938 $«13 $16,877 1.1861 $(24)

Chinese Yuan 1,592 6.9055 (10) 1,221 6.8128 (33)

Japanese Yen 1,079 108.2188 6 1,109 110.5370 15

All other currencies 4,388 n/a 10 4,230 n/a (25)

Total $18,689 $«19 $23,437 $(67)

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Abbott’s revenues are derived primarily from the sale of a broad lineof health care products under short-term receivable arrangements.Patent protection and licenses, technological and performancefeatures, and inclusion of Abbott’s products under a contract mostimpact which products are sold; price controls, competition andrebates most impact the net selling prices of products; and foreigncurrency translation impacts the measurement of net sales andcosts. Abbott’s primary products are cardiovascular and neuromod-ulation products, diagnostic testing products, nutritional productsand branded generic pharmaceuticals. Sales in international mar-kets comprise approximately 65 percent of consolidated net sales.

Over the last several years, Abbott proactively shaped the companywith the strategic intent to deliver sustainable growth in all of itsbusinesses. Significant steps over the last three years included:

• In January 2017, Abbott acquired St. Jude Medical, Inc. (St. JudeMedical), a global medical device manufacturer, for approxi-mately $23.6 billion, including approximately $13.6 billion incash and approximately $10 billion in Abbott common shares,based on Abbott’s closing stock price on the acquisition date.As part of the acquisition, Abbott assumed, repaid or refinancedapproximately $5.9 billion of St. Jude Medical’s debt. The acqui-sition provided expanded opportunities for future growth and isan important part of the company’s effort to develop a strong,diverse portfolio. The combined business competes in nearlyevery area of the $30 billion global cardiovascular device mar-ket, as well as in neuromodulation which treats chronic painand movement disorders.

• In October 2017, Abbott acquired Alere Inc. (Alere), a diagnosticdevice and service provider, for $51.00 per common share incash, which equated to a purchase price of approximately$4.5 billion. As part of the acquisition, Abbott also tendered forAlere’s preferred shares for a total value of approximately$0.7 billion and assumed and subsequently repaid approxi-mately $3.0 billion of Alere’s debt. The acquisition establishedAbbott as a leader in point of care testing, expanded Abbott’sglobal diagnostics presence and provided access to new prod-ucts, channels and geographies.

• In February 2017, Abbott completed the sale of Abbott MedicalOptics (AMO), its vision care business, to Johnson & Johnsonfor $4.325 billion in cash and recognized an after-tax gain of$728 million. The operating results of AMO were included inEarnings from Continuing Operations up to the date of sale asthe business did not qualify for reporting as discontinuedoperations.

The sales increase over the last three years reflects both the 2017acquisitions of St. Jude Medical and Alere and volume growthacross Abbott’s businesses, most notably in the EstablishedPharmaceuticals, Diabetes Care and Diagnostics businesses.Volume growth reflects the introduction of new products as wellas higher sales of existing products. In 2017, the acquisitions ofSt. Jude Medical and Alere, partially offset by the sale of AMO,contributed 26.5 percentage points of Abbott’s total sales growthversus 2016. Sales in emerging markets, which represent approxi-mately 40 percent of total company sales, increased 12.3 percent in2018 and 13.9 percent in 2017, excluding the impact of foreignexchange. (Emerging markets include all countries except the

United States, Western Europe, Japan, Canada, Australia andNew Zealand.)

Over the last three years, Abbott’s operating margin waspositively impacted by margin improvements across variousbusinesses, including Established Pharmaceuticals, CoreLaboratory, and Diabetes Care, partially offset by higher amorti-zation and other costs associated with the acquisitions. In 2018,Abbott’s operating margin increased by approximately 6 percent-age points primarily due to operating margin improvement invarious businesses and lower inventory step-up amortization andintegration costs associated with the acquisitions, partially offsetby higher intangible amortization. In 2017, Abbott’s operatingmargin decreased by approximately 9 percentage points primarilydue to costs associated with the acquisitions, including higherintangible amortization expense, inventory step-up amortizationand integration costs, partially offset by operating marginimprovement in various businesses.

Since the beginning of the first quarter of 2017, the results ofAbbott’s Cardiovascular and Neuromodulation Products seg-ment include Abbott’s historical Vascular Products segmentand St. Jude Medical from the date of acquisition. Excluding theimpact of foreign exchange, sales in the Cardiovascular andNeuromodulation Products segment increased 4.9 percent in 2018and 207.4 percent in 2017. The sales increase in 2018 was drivenprimarily by higher Structural Heart, Electrophysiology, andNeuromodulation sales. The sales increase in 2017 was driven bythe acquisition of St. Jude Medical. Excluding the impact of theacquisition, as well as the impact of foreign exchange, sales in theCardiovascular and Neuromodulation Products segment wereessentially unchanged in 2017 versus the prior year. In 2017,higher structural heart and endovascular sales were offset bylower coronary stent sales and the comparison impact from thefavorable 2016 resolution of a third-party royalty agreementin Abbott’s vascular business.

In 2018, operating earnings for this segment increased 9.9 percent.The operating margin profile declined from 35.8 percent of salesin 2016 to 31.7 percent in 2018 primarily due to the mix of businessresulting from the acquisition of St. Jude Medical and ongoingpricing pressures in the coronary business. Cost improvementinitiatives contributed to an improvement in the operating marginprofile from 30.5 percent in 2017 to 31.7 percent in 2018.

In 2018, the Cardiovascular and Neuromodulation Productssegment received approval or clearance from the U.S. Food andDrug Administration (FDA) for the following products:

• the Advisor® HD Grid Mapping Catheter, Sensor Enabled™,which creates highly detailed maps of the heart and expandsAbbott’s electrophysiology product portfolio,

• the next-generation version of Abbott’s leading MitraClip®heart valve repair device,

• the HeartMate 3® Left Ventricular Assist Device (LVAD) as adestination (long-term use) therapy, and

• the XIENCE Sierra® Drug Eluting Stent System, which is the nextgeneration of its drug-eluting coronary stent system. The XIENCESierra Drug Eluting Stent System also received national reimburse-ment in Japan to treat people with coronary artery disease.

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In Abbott’s worldwide diagnostics business, sales growth overthe last three years reflected the acquisition of Alere in October2017, as well as continued market penetration by the core labora-tory business in the U.S. and internationally. Alere’s results areincluded in Abbott’s Diagnostic Products reportable segmentfrom the date of acquisition. Worldwide diagnostic sales increased33.6 percent in 2018 and 16.7 percent in 2017, excluding the impactof foreign exchange. Excluding the impact of the Alere acquisi-tion, as well as the impact of foreign exchange, sales in theDiagnostic Products segment increased 6.5 percent in 2018 and5.5 percent in 2017. This growth includes the continued roll-outof Alinity®, which is Abbott’s integrated family of next-generationdiagnostic systems and solutions that are designed to increaseefficiency by running more tests in less space, generating testresults faster and minimizing human errors while continuing toprovide quality results. Abbott has regulatory approvals in the U.S.,Europe, China, and other markets for the “Alinity c” and “Alinity i”instruments for clinical chemistry and immunoassay diagnostics,respectively. In 2018, Abbott accelerated the launch of Alinity inEurope and other international markets after a broad range ofassays obtained regulatory approval and were added to the testmenu. Abbott also continued the roll-out of “Alinity s” for bloodand plasma screening.

Margin improvement continued to be a key focus for theDiagnostics business in 2018 and 2017. While operating margins of24.9 percent of sales in 2018 have remained relatively unchangedfrom the 24.8 percent of sales reported in 2016, this reflects dilu-tion to the operating margin profit from the acquisition of Alereand the negative impact of foreign exchange, offset by the contin-ued execution of efficiency initiatives in the manufacturing andsupply chain functions.

In Abbott’s worldwide nutritional products business, sales overthe last three years were positively impacted by demographicssuch as an aging population and an increasing rate of chronicdisease in developed markets and the rise of a middle class inmany emerging markets, as well as by numerous new productintroductions that leveraged Abbott’s strong brands. In 2018,excluding the impact of foreign exchange, the nutritional businessexperienced above-market growth in the worldwide pediatricbusiness driven by market leading brands Similac® and Pedialyte®in the U.S. as well as growth across several markets in Asia.Worldwide, adult nutrition sales increased in 2018 led by thegrowth of Ensure®, Abbott’s market-leading complete and bal-anced nutrition brand, and Glucerna®, Abbott’s market-leadingdiabetes-specific nutrition brand.

In 2017, the nutritionals business experienced growth in the U.S.driven by above-market performance in Abbott’s infant and tod-dler brands. Internationally, 2017 sales growth in China and Indiawas partially offset by challenging market conditions in the infantformula market in various emerging markets. With respect to theprofitability of the nutritional products business, manufacturingand distribution process changes, as well as other cost reductions,

drove margin improvements across the business over the last threeyears although such improvements were offset by inflation oncommodity costs. The decrease in operating margins for thisbusiness from 24.1 percent of sales in 2016 to 22.9 percent in2018 was primarily due to negative impact of foreign exchange.

The Established Pharmaceutical Products segment focuses onthe sale of its products in emerging markets. Excluding the impactof foreign exchange, Established Pharmaceutical sales increased7.0 percent in 2018 and 9.5 percent in 2017. The sales increase in2018 was driven by double-digit growth in India and China. Thesales increase in 2017 was primarily driven by double-digit growthin China and various countries in Latin America. Operating marginsincreased from 18.7 percent of sales in 2016 to 20.2 percent in 2018primarily due to the continued focus on cost reduction initiatives.

In its diabetes business, Abbott received U.S. FDA approval forits FreeStyle Libre® 14 day sensor, making it the longest lastingwearable glucose sensor available. The FreeStyle Libre system isthe only continuous glucose monitoring system that does notrequire any user calibration.

In conjunction with the funding of the St. Jude Medical and Alereacquisitions and the assumption of St. Jude Medical’s and Alere’sexisting debt, Abbott’s total short-term and long-term debtincreased from approximately $9.0 billion at December 31, 2015 to$27.9 billion at December 31, 2017. At the beginning of 2018, Abbottcommitted to reducing its debt levels and in 2018 Abbott repaidapproximately $8.3 billion of debt, net of borrowings, bringing itstotal debt to $19.6 billion.

Abbott declared dividends of $1.16 per share in 2018 comparedto $1.075 per share in 2017, an increase of approximately 8 percent.Dividends paid totaled $1.974 billion in 2018 compared to$1.849 billion in 2017. The year-over-year change in the amountof dividends paid reflects the increase in the dividend rate.In December 2018, Abbott increased the company’s quarterlydividend by approximately 14 percent to $0.32 per share from$0.28 per share, effective with the dividend paid in February 2019.

In 2019, Abbott will focus on continuing to invest in productdevelopment areas that provide the opportunity for strongsustainable growth over the next several years. In its diagnosticsbusiness, Abbott will continue to focus on driving market adoptionand geographic expansion of its Alinity suite of diagnostics instru-ments. In the cardiovascular and neuromodulation business,Abbott will continue to focus on expanding its market position invarious areas including electrophysiology, heart failure, and struc-tural heart. In its nutritionals business, Abbott will continue tofocus on driving growth globally and further enhancing its portfo-lio with the introduction of several new science-based products.In the established pharmaceuticals business, Abbott will continueto focus on growing its business with the depth and breadth of itsportfolio in emerging markets. In its diabetes care business, Abbottwill focus on driving continued market adoption of its FreeStyleLibre continuous glucose monitoring system.

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CRITICAL ACCOUNTING POLICIES

Sales Rebates—In 2018, approximately 45 percent of Abbott’sconsolidated gross revenues were subject to various forms ofrebates and allowances that Abbott recorded as reductions ofrevenues at the time of sale. Most of these rebates and allowancesin 2018 are in the Nutritional Products and Diabetes Care seg-ments. Abbott provides rebates to state agencies that administerthe Special Supplemental Nutrition Program for Women, Infants,and Children (WIC), wholesalers, group purchasing organizations,and other government agencies and private entities. Rebateamounts are usually based upon the volume of purchases usingcontractual or statutory prices for a product. Factors used in therebate calculations include the identification of which productshave been sold subject to a rebate, which customer or governmentagency price terms apply, and the estimated lag time between saleand payment of a rebate. Using historical trends, adjusted forcurrent changes, Abbott estimates the amount of the rebate thatwill be paid, and records the liability as a reduction of gross saleswhen Abbott records its sale of the product. Settlement of therebate generally occurs from one to six months after sale. Abbottregularly analyzes the historical rebate trends and makes adjust-ments to reserves for changes in trends and terms of rebateprograms. Rebates and chargebacks charged against gross salesin 2018, 2017 and 2016 amounted to approximately $3.0 billion,$2.8 billion and $2.5 billion, respectively, or 19.0 percent,20.5 percent and 22.9 percent of gross sales, respectively, basedon gross sales of approximately $16.0 billion, $13.9 billion and$10.7 billion, respectively, subject to rebate. A one-percentagepoint increase in the percentage of rebates to related gross saleswould decrease net sales by approximately $160 million in 2018.Abbott considers a one-percentage point increase to be a reason-ably likely increase in the percentage of rebates to related grosssales. Other allowances charged against gross sales were approxi-mately $175 million, $166 million and $160 million for cashdiscounts in 2018, 2017 and 2016, respectively, and $191 million,$204 million and $242 million for returns in 2018, 2017 and 2016,respectively. Cash discounts are known within 15 to 30 days ofsale, and therefore can be reliably estimated. Returns can be reli-ably estimated because Abbott’s historical returns are low, andbecause sales returns terms and other sales terms have remainedrelatively unchanged for several periods.

Management analyzes the adequacy of ending rebate accrualbalances each quarter. In the domestic nutritional business,management uses both internal and external data available toestimate the accruals. In the WIC business, estimates are requiredfor the amount of WIC sales within each state where Abbott holdsthe WIC contract. The state where the sale is made, which is thedetermining factor for the applicable rebated price, is reliablydeterminable. Rebated prices are based on contractually obligatedagreements generally lasting a period of two to four years. Exceptfor a change in contract price or a transition period before or aftera change in the supplier for the WIC business in a state, accrualsare based on historical redemption rates and data from the U.S.

Department of Agriculture (USDA) and the states submittingrebate claims. The USDA, which administers the WIC program,has been making its data available for many years. Managementalso estimates the states’ processing lag time based on sales andclaims data. Inventory in the retail distribution channel does notvary substantially. Management has access to several large custom-ers’ inventory management data, which allows management tomake reliable estimates of inventory in the retail distribution chan-nel. At December 31, 2018, Abbott had WIC business in 27 states.

Historically, adjustments to prior years’ rebate accruals have notbeen material to net income. Abbott employs various techniques toverify the accuracy of claims submitted to it, and where possible,works with the organizations submitting claims to gain insightinto changes that might affect the rebate amounts. For governmentagency programs, the calculation of a rebate involves interpreta-tions of relevant regulations, which are subject to challenge orchange in interpretation.

Income Taxes—Abbott operates in numerous countries where itsincome tax returns are subject to audits and adjustments. BecauseAbbott operates globally, the nature of the audit items is often verycomplex, and the objectives of the government auditors can resultin a tax on the same income in more than one country. Abbottemploys internal and external tax professionals to minimize auditadjustment amounts where possible. In accordance with theaccounting rules relating to the measurement of tax contingencies,in order to recognize an uncertain tax benefit, the taxpayer mustbe more likely than not of sustaining the position, and the measure-ment of the benefit is calculated as the largest amount that is morethan 50 percent likely to be realized upon resolution of the benefit.Application of these rules requires a significant amount of judg-ment. In the U.S., Abbott’s federal income tax returns through2016 are settled except for the federal income tax returns of theformer Alere consolidated group which are settled through 2014and the former St. Jude Medical consolidated group which aresettled through 2013. Undistributed foreign earnings remainindefinitely reinvested in foreign operations. Determining theamount of unrecognized deferred tax liability related to anyremaining undistributed foreign earnings not subject to thetransition tax and additional outside basis difference in its foreignentities is not practicable.

Pension and Post-Employment Benefits—Abbott offers pensionbenefits and post-employment health care to many of its employ-ees. Abbott engages outside actuaries to assist in the determinationof the obligations and costs under these programs. Abbott mustdevelop long-term assumptions, the most significant of which arethe health care cost trend rates, discount rates and the expectedreturn on plan assets. The discount rates used to measure liabili-ties were determined based on high-quality fixed incomesecurities that match the duration of the expected retiree benefits.The health care cost trend rates represent Abbott’s expectedannual rates of change in the cost of health care benefits and are aforward projection of health care costs as of the measurementdate. A difference between the assumed rates and the actual rates,

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which will not be known for years, can be significant in relation tothe obligations and the annual cost recorded for these programs.Low interest rates have significantly increased actuarial losses forthese plans. At December 31, 2018, pretax net actuarial losses andprior service costs and (credits) recognized in Accumulated othercomprehensive income (loss) for Abbott’s defined benefit plansand medical and dental plans were losses of $3.3 billion and$198 million, respectively. Actuarial losses and gains are amortizedover the remaining service attribution periods of the employeesunder the corridor method, in accordance with the rules foraccounting for post-employment benefits. Differences betweenthe expected long-term return on plan assets and the actualannual return are amortized over a five-year period. Note 14 tothe consolidated financial statements describes the impact of aone-percentage point change in the health care cost trend rate;however, there can be no certainty that a change would be limitedto only one percentage point.

Valuation of Intangible Assets—Abbott has acquired and continuesto acquire significant intangible assets that Abbott records at fairvalue at the acquisition date. Transactions involving the purchaseor sale of intangible assets occur with some frequency betweencompanies in the health care field and valuations are usually basedon a discounted cash flow analysis. The discounted cash flowmodel requires assumptions about the timing and amount offuture net cash flows, risk, cost of capital, terminal values andmarket participants. Each of these factors can significantly affectthe value of the intangible asset. Abbott engages independentvaluation experts who review Abbott’s critical assumptions andcalculations for acquisitions of significant intangibles. Abbottreviews definite-lived intangible assets for impairment eachquarter using an undiscounted net cash flows approach. If theundiscounted cash flows of an intangible asset are less than thecarrying value of an intangible asset, the intangible asset is writtendown to its fair value, which is usually the discounted cash flowamount. Where cash flows cannot be identified for an individualasset, the review is applied at the lowest group level for whichcash flows are identifiable. Goodwill and indefinite-lived intangibleassets, which relate to in-process research and developmentacquired in a business combination, are reviewed for impairmentannually or when an event that could result in impairment occurs.At December 31, 2018, goodwill amounted to $23.3 billion and netintangibles amounted to $18.9 billion. Amortization expense incontinuing operations for intangible assets amounted to$2.2 billion in 2018, $2.0 billion in 2017 and $550 million in 2016.There was no significant reduction of goodwill relating to impair-ments in 2018, 2017 and 2016.

Litigation—Abbott accounts for litigation losses in accordancewith Financial Accounting Standards Board (FASB) AccountingStandards Codification (ASC) No. 450, “Contingencies.” UnderASC No. 450, loss contingency provisions are recorded for proba-ble losses at management’s best estimate of a loss, or when a bestestimate cannot be made, a minimum loss contingency amount isrecorded. These estimates are often initially developed substan-tially earlier than the ultimate loss is known, and the estimatesare refined each accounting period as additional informationbecomes known. Accordingly, Abbott is often initially unable todevelop a best estimate of loss, and therefore the minimumamount, which could be zero, is recorded. As informationbecomes known, either the minimum loss amount is increased,

resulting in additional loss provisions, or a bestestimate can be made, also resulting in additional loss provisions.Occasionally, a best estimate amount is changed to a loweramount when events result in an expectation of a more favorableoutcome than previously expected. Abbott estimates the range ofpossible loss to be from approximately $125 million to$165 million for its legal proceedings and environmental expo-sures. Accruals of approximately $145 million have been recordedat December 31, 2018 for these proceedings and exposures. Theseaccruals represent management’s best estimate of probable loss,as defined by FASB ASC No. 450, “Contingencies.”

RESULTS OF OPERATIONS

SALES

The following table details the components of sales growth byreportable segment for the last two years:

Total %Change

Components of % Change

BusinessAcquisitions/

Divestitures Price Volume Exchange

Total Net Sales2018 vs. 2017 11.6 4.9 (1.0) 8.1 (0.4)

2017 vs. 2016 31.3 26.5 (0.6) 5.1 0.3

Total U.S.2018 vs. 2017 12.1 8.0 (1.1) 5.2 —

2017 vs. 2016 49.1 46.9 (0.9) 3.1 —

Total International2018 vs. 2017 11.4 3.2 (1.0) 9.7 (0.5)

2017 vs. 2016 23.3 17.3 (0.4) 6.0 0.4

Established Pharmaceutical Products Segment2018 vs. 2017 3.2 — 2.2 4.8 (3.8)

2017 vs. 2016 11.1 — 2.3 7.2 1.6

Nutritional Products Segment2018 vs. 2017 4.4 — 0.2 4.7 (0.5)

2017 vs. 2016 0.4 — 0.3 0.3 (0.2)

Diagnostic Products Segment2018 vs. 2017 33.5 27.1 (2.0) 8.5 (0.1)

2017 vs. 2016 16.7 11.2 (1.1) 6.6 —

Cardiovascular and Neuromodulation Products Segment2018 vs. 2017 5.9 — (2.8) 7.7 1.0

2017 vs. 2016 207.7 207.2 (4.3) 4.5 0.3

The increase in Total Net Sales in 2018 reflects the acquisition ofAlere, as well as volume growth across all of Abbott’s businesses.The increase in Total Net Sales in 2017 reflects the acquisitionsof St. Jude Medical and Alere, as well as volume growth in theestablished pharmaceuticals and diagnostics businesses. The pricedeclines related to the Cardiovascular and NeuromodulationProducts segment in 2018 and 2017 primarily reflect pricing pres-sure on drug eluting stents (DES) as a result of market competitionin the U.S. and other major markets.

A comparison of significant product and product group sales is asfollows. Percent changes are versus the prior year and are basedon unrounded numbers.

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(dollars in millions) 2018Total

ChangeImpact ofExchange

TotalChange

Excl.Exchange

Total EstablishedPharmaceuticals —

Key Emerging Markets $3,363 2% (5) % 7%

Other 1,059 8 2 6

Nutritionals —International PediatricNutritionals 2,254 7 — 7

U.S. Pediatric Nutritionals 1,843 4 — 4

International AdultNutritionals 1,900 7 (1) 8

U.S. Adult Nutritionals 1,232 (2) — (2)

Diagnostics —Core Laboratory 4,386 8 — 8

Molecular 484 5 1 4

Point of Care 553 — — —

Rapid Diagnostics 2,072 n/m n/m n/m

Cardiovascular andNeuromodulation —

Rhythm Management 2,091 (1) 1 (2)

Electrophysiology 1,668 21 1 20

Heart Failure 646 — — —

Vascular 2,929 1 1 —

Structural Heart 1,239 14 1 13

Neuromodulation 864 7 — 7

(dollars in millions) 2017Total

ChangeImpact ofExchange

TotalChange

Excl.Exchange

Total EstablishedPharmaceuticals—

Key Emerging Markets $3,307 14% 2% 12%

Other 980 3 1 2

Nutritionals—International PediatricNutritionals 2,112 (4) — (4)

U.S. Pediatric Nutritionals 1,777 6 — 6

International AdultNutritionals 1,782 3 (1) 4

U.S. Adult Nutritionals 1,254 (3) — (3)

Diagnostics—Core Laboratory 4,063 6 — 6

Molecular 463 2 1 1

Point of Care 550 7 — 7

Rapid Diagnostics 540 n/m n/m n/m

Cardiovascular andNeuromodulation—

Rhythm Management 2,103 n/m n/m n/mElectrophysiology 1,382 n/m n/m n/mHeart Failure 643 n/m n/m n/mVascular 2,892 14 — 14

Structural Heart 1,083 208 1 207

Neuromodulation 808 n/m n/m n/m

n/m = percent change is not meaningful.

Note: In order to compute results excluding the impact of exchange rates, current year U.S.dollar sales are multiplied or divided, as appropriate, by the current year average foreignexchange rates and then those amounts are multiplied or divided, as appropriate, by the prioryear average foreign exchange rates.

Total Established Pharmaceutical Products sales increased7.0 percent in 2018 and 9.5 percent in 2017, excluding the impactof foreign exchange. The Established Pharmaceutical Productssegment is focused on several key emerging markets includingIndia, Russia, China and Brazil. Excluding the impact of foreignexchange, total sales in these key emerging markets increased7.4 percent in 2018 and 11.9 percent in 2017. Excluding the impactof foreign exchange, 2018 sales in India and China and 2017 salesin China and various countries in Latin America experienceddouble-digit growth. Excluding the impact of foreign exchange,sales in Established Pharmaceuticals’ other emerging marketsincreased 5.8 percent in 2018 and 2.2 percent in 2017. The 2017sales growth for Established Pharmaceuticals’ other emergingmarkets includes the unfavorable impact of Venezuelan opera-tions. Excluding Venezuela and the effect of foreign exchange,sales in other emerging markets increased 7.5 percent in 2017.

Total Nutritional Products sales increased 4.9 percent in 2018and 0.6 percent in 2017, excluding the unfavorable impact offoreign exchange. The increases in 2018 and 2017 U.S. PediatricNutritional sales primarily reflect continued above-market perfor-mance in Abbott’s infant and toddler brands, including Similacand Pedialyte. 2018 International Pediatric Nutritional salesincreased primarily due to growth in Asia and Latin America.The 2017 decrease in International Pediatric Nutritional saleswas driven by challenging market conditions in the infant formulamarket in various emerging markets, partially offset by growthin China and India.

The 2018 sales increase in the International Adult Nutritionalbusiness was led by growth of Ensure, Abbott’s market-leadingcomplete and balanced nutrition brand, and Glucerna, Abbott’smarket-leading diabetes-specific nutrition brand in Asia and LatinAmerica. U.S. Adult Nutritional business sales decreased in 2018primarily driven by the wind down of a non-core product line.Excluding the unfavorable impact of foreign exchange, the 2017increase in International Adult Nutritional sales was due primar-ily to growth in Ensure, as well as volume growth in emergingmarkets and continued expansion of the adult nutrition categoryinternationally. U.S. Adult Nutritional revenues decreased in 2017due to competitive and market dynamics.

Total Diagnostic Products sales increased 33.6 percent in 2018 and16.7 percent in 2017, excluding the impact of foreign exchange. Thesales increases in 2018 and 2017 included the acquisition of Alere,which was completed on October 3, 2017. Excluding the impactof the acquisition, as well as the impact of foreign exchange, salesin the Diagnostic Products segment in 2018 and 2017 increased6.5 and 5.5 percent, respectively. The 2018 increase in sales wasprimarily driven by above-market growth in Core Laboratory inthe U.S. and internationally. In 2018, Abbott accelerated the rollout of its Alinity systems for Core Laboratory in Europe. The2017 increase in sales was primarily driven by share gains in theCore Laboratory markets globally, as well as performance inPoint of Care led by the continued adoption of Abbott’si-STAT® handheld system.

Excluding the effect of foreign exchange, total Cardiovascular andNeuromodulation Products sales grew 4.9 percent in 2018. The2018 sales increase was driven by growth in several areas, includingdouble-digit growth in Electrophysiology and Structural Heart.

The growth in Electrophysiology in 2018 was led by higher sales incardiac mapping and ablation catheters, as well as the U.S. launchof Abbott’s Confirm Rx® Insertable Cardiac Monitor (ICM), the

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world’s first and only smartphone-compatible ICM designed to helpphysicians remotely identify cardiac arrhythmias. In May 2018,Abbott announced U.S. FDA clearance of the Advisor HD GridMapping Catheter, Sensor Enabled, which creates detailed maps ofthe heart and expands Abbott’s electrophysiology product portfolio.

Growth in Structural Heart in 2018 was driven by several productareas including the MitraClip, Abbott’s market-leading device forthe minimally-invasive treatment of mitral regurgitation and theAMPLATZER® PFO occluder, a device designed to close a hole-like opening in the heart. In July 2018, Abbott announced U.S.FDA approval for a next-generation version of MitraClip. InSeptember 2018, Abbott announced positive clinical results fromits COAPT study, which demonstrated that MitraClip improvedsurvival and clinical outcomes for select patients with functionalmitral regurgitation. In the fourth quarter of 2018, the COAPTstudy data was submitted to the U.S. FDA to request approval ofan expanded indication for MitraClip.

The growth in Neuromodulation in 2018 reflects higher revenuefor various products for the treatment of chronic pain and move-ment disorders.

In Vascular, growth in imaging, vessel closure and other endovas-cular revenues in 2018 was partially offset by lower DES sales dueto lower U.S. market share and price erosion in various markets.During the second quarter of 2018, Abbott received approval fromthe U.S. FDA for the XIENCE Sierra Drug Eluting Stent System, thenewest generation of its coronary stent system. During the secondquarter of 2018, the XIENCE Sierra Drug Eluting Stent System alsoreceived national reimbursement in Japan to treat people withcoronary artery disease. In Rhythm Management, market sharegains in the new patient segment were offset by replacement cycledynamics. In Heart Failure, international sales growth was offset bylower U.S. sales. In October 2018, the HeartMate 3 Left VentricularAssist Device (LVAD) received U.S. FDA approval as a destinationtherapy for people living with advanced heart failure.

In 2017, excluding the effect of foreign exchange, totalCardiovascular and Neuromodulation Products sales grew207.4 percent. The increase in sales was primarily driven bythe acquisition of St. Jude Medical which was completed onJanuary 4, 2017. Excluding the impact of the acquisition, as wellas the impact of foreign exchange, sales in the vascular businesswere essentially flat in 2017 versus the prior year as lower coro-nary stent sales and the comparison impact from the favorable2016 resolution of a third-party royalty agreement were offsetby higher structural heart and endovascular sales.

Abbott has periodically sold product rights to non-strategic prod-ucts and has recorded the related gains in net sales in accordancewith Abbott’s revenue recognition policies as discussed in Note 1to the consolidated financial statements. Related net sales werenot significant in 2018, 2017 and 2016.

The expiration of licenses and patent protection can affect thefuture revenues and operating income of Abbott. There are nosignificant patent or license expirations in the next three yearsthat are expected to materially affect Abbott.

In April 2017, Abbott received a warning letter from the U.S. FDArelated to its manufacturing facility in Sylmar, CA which wasacquired by Abbott on January 4, 2017 as part of the acquisition ofSt. Jude Medical. This facility manufactures implantable cardio-verter defibrillators, cardiac resynchronization therapy

defibrillators, and monitors. The warning letter relates to theFDA’s observations from an inspection of this facility. Abbott hasprepared a comprehensive plan of corrective actions which hasbeen provided to the FDA. Execution of the plan is progressing.

OPERATING EARNINGS

Gross profit margins were 51.3 percent of net sales in 2018,47.5 percent in 2017 and 53.8 percent in 2016. In 2018, the increaseprimarily reflects lower inventory step-up amortization related tothe St. Jude Medical and Alere acquisitions and margin improve-ments in various businesses, partially offset by higher intangibleamortization expense. In 2017, the decrease primarily reflectshigher intangible amortization expense and inventory step-upamortization related to the St. Jude Medical and Alere acquisitions,partially offset by margin improvements in various businesses.

Research and development expense was $2.3 billion in 2018,$2.3 billion in 2017, and $1.4 billion in 2016 and represented a1.7 percent increase in 2018, and a 56.2 percent increase in 2017.The 2018 increase in research and development expenses wasprimarily due to higher spending on various projects, partiallyoffset by lower restructuring and integration costs. The 2017increase in research and development expenses was primarilydue to the acquisition of the St. Jude Medical business. In 2018,research and development expenditures totaled $1.0 billion forthe Cardiovascular and Neuromodulation Products segment,$585 million for the Diagnostic Products segment, $198 millionfor the Nutritional Products segment and $184 million for theEstablished Pharmaceutical Products segment.

Selling, general and administrative expenses increased 6.1 percentin 2018 and 36.3 percent in 2017 versus the respective prior year.The 2018 increase was primarily due to the impact of the acquisi-tion of the Alere business in October 2017, as well as higherspending to drive continued growth and market expansion invarious businesses, partially offset by lower acquisition-relatedexpenses. The 2017 increase was primarily due to the acquisitionof the St. Jude Medical business, as well as the incrementalexpenses to integrate St. Jude Medical with Abbott’s existingvascular business, partially offset by the impact of cost improve-ment initiatives across various functions and businesses.

BUSINESS ACQUISITIONS

On January 4, 2017, Abbott completed the acquisition of St. JudeMedical, a global medical device manufacturer, for approximately$23.6 billion, including approximately $13.6 billion in cash andapproximately $10 billion in Abbott common shares, which repre-sented approximately 254 million shares of Abbott common stock,based on Abbott’s closing stock price on the acquisition date.As part of the acquisition, approximately $5.9 billion of St. JudeMedical’s debt was assumed, repaid or refinanced by Abbott.The acquisition provides expanded opportunities for futuregrowth and is an important part of the company’s ongoing effortto develop a strong, diverse portfolio of devices, diagnostics,nutritionals and branded generic pharmaceuticals. The combinedbusiness competes in nearly every area of the cardiovasculardevice market, as well as in the neuromodulation market.

Under the terms of the agreement, for each St. Jude Medicalcommon share, St. Jude Medical shareholders received $46.75 incash and 0.8708 of an Abbott common share. At an Abbott stockprice of $39.36, which reflected the closing price on January 4,

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2017, this represented a value of approximately $81 per St. JudeMedical common share and total purchase consideration of$23.6 billion. The cash portion of the acquisition was fundedthrough a combination of medium and long-term debt issued inNovember 2016 and a $2.0 billion 120-day senior unsecuredbridge term loan facility which was subsequently repaid.

The final allocation of the fair value of the St. Jude Medicalacquisition is shown in the table below.

(in billions)Acquired intangible assets, non-deductible $15.5




Net debt (5.3)

Total final allocation of fair value $23.6

The goodwill is primarily attributable to expected synergiesfrom combining operations, as well as intangible assets that donot qualify for separate recognition. The goodwill is identifiableto the Cardiovascular and Neuromodulation Products reportablesegment. The acquired tangible assets consist primarily of tradeaccounts receivable of approximately $1.1 billion, inventory ofapproximately $1.7 billion, other current assets of $176 million,property and equipment of approximately $1.5 billion, and otherlong-term assets of approximately $455 million. The acquiredtangible liabilities consist of trade accounts payable and othercurrent liabilities of approximately $1.1 billion and other non-current liabilities of approximately $870 million.

In 2016, Abbott and St. Jude Medical agreed to sell certain busi-nesses to Terumo Corporation for approximately $1.12 billion. Thesale included the St. Jude Medical Angio-Seal™ and Femoseal™vascular closure and Abbott’s Vado® Steerable Sheath businesses.The sale closed on January 20, 2017 and no gain or loss wasrecorded in the Consolidated Statement of Earnings.

On October 3, 2017, Abbott acquired Alere, a diagnostic deviceand service provider, for $51.00 per common share in cash, whichequated to a purchase price of approximately $4.5 billion. As partof the acquisition, Abbott tendered for Alere’s preferred shares fora total value of approximately $0.7 billion. In addition, approxi-mately $3.0 billion of Alere’s debt was assumed and subsequentlyrepaid. The acquisition establishes Abbott as a leader in point ofcare testing, expands Abbott’s global diagnostics presence andprovides access to new products, channels and geographies.Abbott utilized a combination of cash on hand and debt to fundthe acquisition. See Note 11 — Debt and Lines of Credit for furtherdetails regarding the debt utilized for the acquisition.

The final allocation of the fair value of the Alere acquisition isshown in the table below.

(in billions)Acquired intangible assets, non-deductible $«3.5




Net debt (2.6)

Preferred stock (0.7)

Total final allocation of fair value $«4.5

The goodwill is primarily attributable to expected synergies fromcombining operations, as well as intangible assets that do notqualify for separate recognition. The goodwill is identifiable to theDiagnostic Products reportable segment. The approximate valueof the acquired tangible assets consists of $430 million of tradeaccounts receivable, $425 million of inventory, $225 million ofother current assets, $540 million of property and equipment, and$210 million of other long-term assets. The approximate value ofthe acquired tangible liabilities consists of $675 million of tradeaccounts payable and other current liabilities and $145 million ofother non-current liabilities.

In the third quarter of 2017, Alere entered into agreements to sellits Triage MeterPro cardiovascular and toxicology business andthe assets and liabilities related to its B-type Natriuretic Peptideassay business run on Beckman Coulter analyzers to QuidelCorporation (Quidel). The transactions with Quidel reflect a totalpurchase price of $400 million payable at the close of the transac-tion, $240 million payable in six annual installments beginningapproximately six months after the close of the transaction, andcontingent consideration with a maximum value of $40 million.In the third quarter of 2017, Alere entered into an agreement withSiemens Diagnostics Holding II B.V. (Siemens) to sell its subsidi-ary, Epocal Inc., for approximately $200 million payable at theclose of the transaction. Alere agreed to divest these businessesin connection with the review by the Federal Trade Commissionand the European Commission of Abbott’s agreement to acquireAlere. The sale to Quidel closed on October 6, 2017, and the sale toSiemens closed on October 31, 2017. No gain or loss on these saleswas recorded in the Consolidated Statement of Earnings.

On July 17, 2017, Abbott commenced a tender offer to purchasefor cash the 1.77 million outstanding shares of Alere’s Series BConvertible Perpetual Preferred Stock at a price of $402 per share,plus accrued but unpaid dividends to, but not including, the settle-ment date of the tender offer. This tender offer was subject to thesatisfaction of certain conditions, including Abbott’s acquisition ofAlere and upon there being validly tendered (and not properlywithdrawn) at the expiration date of the tender offer that numberof shares of Preferred Stock that equaled at least a majority of thePreferred Stock issued and outstanding at the expiration of thetender offer. All conditions to the offer were satisfied and Abbottaccepted for payment the 1.748 million shares of Preferred Stockthat were validly tendered (and not properly withdrawn). Theremaining shares were cashed out for an amount equal to the$400.00 per share liquidation preference of such shares, plusaccrued but unpaid dividends, without interest. Payment for allof the shares of Preferred Stock was made in the fourth quarterof 2017.

RESTRUCTURINGS

In 2017 and 2018, Abbott management approved restructuringplans as part of the integration of the acquisition of St. JudeMedical into the Cardiovascular and Neuromodulation Productssegment and Alere into the Diagnostic Products segment, inorder to leverage economies of scale and reduce costs. Abbottrecorded charges, including one-time employee terminationbenefits, of approximately $52 million in 2018 and $187 millionin 2017. Approximately $5 million in 2018 and 2017 are recordedin Cost of products sold, approximately $10 million in 2018 isrecorded in Research and development and approximately$37 million in 2018 and $182 million in 2017 in Selling, generaland administrative expense.

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From 2016 to 2018, Abbott management approved plans to stream-line operations in order to reduce costs and improve efficienciesin various Abbott businesses including the nutritional, establishedpharmaceuticals and vascular businesses. Abbott recordedemployee-related severance and other charges of approximately$28 million in 2018, $120 million in 2017 and $32 million in 2016.Approximately $10 million in 2018, $7 million in 2017 and$9 million in 2016 are recorded in Cost of products sold, approxi-mately $2 million in 2018, $77 million in 2017 and $5 million in2016 are recorded in Research and development and approxi-mately $16 million in 2018, $36 million in 2017 and $18 million in2016 are recorded in Selling, general and administrative expense.Additional charges of approximately $2 million in 2017 and 2016were recorded primarily for accelerated depreciation.

INTEREST EXPENSE AND INTEREST (INCOME)

In 2018, interest expense decreased primarily due to the netrepayment of $8.3 billion of debt, partially offset by lower interestincome due to lower cash balances. In 2017, interest expenseincreased primarily due to the $15.1 billion of debt issued inNovember of 2016 related to the financing of the St. Jude Medicalacquisition which closed on January 4, 2017. In 2016, interestexpense increased primarily due to the amortization of bridgefinancing fees related to the financing of the St. Jude Medical andAlere acquisitions. Interest expense in 2016 also increased due tothe $15.1 billion of debt issued in November 2016.

DEBT EXTINGUISHMENT COSTS

On October 28, 2018, Abbott redeemed approximately $4 billionof debt, which included $750 million principal amount of its 2.00%Notes due 2020; $597 million principal amount of its 4.125% Notesdue 2020; $900 million principal amount of its 3.25% Notes due2023; $450 million principal amount of its 3.4% Notes due 2023;and $1.300 billion principal amount of its 3.75% Notes due 2026.Abbott incurred a net charge of $153 million related to the earlyrepayment of this debt and the unwinding of related interestrate swaps.

On March 22, 2018, Abbott redeemed all of the $947 million prin-cipal amount of its 5.125% Notes due 2019, as well as $1.055 billionof the $2.850 billion principal amount of its 2.35% Notes due 2019.Abbott incurred a net charge of $14 million related to the earlyrepayment of this debt.

OTHER (INCOME) EXPENSE, NET

Other (income) expense, net, for 2018, 2017 and 2016 includesapproximately $160 million of income in each year related to thenon-service cost components of the net periodic benefit costsassociated with the pension and post-retirement medical plans.These amounts are being reported in other (income) expense as aresult of the adoption of the new accounting standard for recog-nizing pension cost. 2017 includes a pre-tax gain of $1.163 billionon the sale of AMO to Johnson & Johnson. 2016 includes$947 million of expense to adjust Abbott’s holding of Mylan N.V.ordinary shares due to a decline in the fair value of the securitieswhich was considered by Abbott to be other than temporary.

TAXES ON EARNINGS

The income tax rates on earnings from continuing operations were18.8 percent in 2018, 84.2 percent in 2017 and 24.8 percent in 2016.

The Tax Cuts and Jobs Act (TCJA) was enacted in the U.S. onDecember 22, 2017. The TCJA reduces the U.S. federal corporatetax rate from 35% to 21%, requires companies to pay a one-timetransition tax on earnings of certain foreign subsidiaries that werepreviously tax deferred and creates new taxes on certain foreignsourced earnings. As of December 31, 2018, Abbott has completedits accounting for all of the enactment date income tax effects ofthe TCJA. If additional regulations issued by the U.S. Departmentof the Treasury after December 31, 2018 result in a change injudgment, the effect of such regulations will be accounted for inthe period in which the regulations are finalized.

Effective for fiscal years beginning after December 31, 2017, theTCJA subjects taxpayers to tax on global intangible low-taxedincome (GILTI) earned by certain foreign subsidiaries. In January2018, the Financial Accounting Standards Board staff providedguidance that an entity may make an accounting policy election toeither recognize deferred taxes related to items that will give riseto GILTI in future years or provide for the tax expense related toGILTI in the year that the tax is incurred. Abbott has elected totreat the GILTI tax as a period expense and provide for the tax inthe year that the tax is incurred.

In the fourth quarter of 2017, Abbott recorded an estimate of nettax expense of $1.46 billion for the impact of the TCJA, which wasincluded in Taxes on Earnings from Continuing Operations in theConsolidated Statement of Earnings. The estimate was provisionaland included a charge of approximately $2.89 billion for the tran-sition tax, partially offset by a net benefit of approximately$1.42 billion for the remeasurement of deferred tax assets andliabilities, and a net benefit of approximately $10 million relatedto certain other impacts of the TCJA. In 2018, Abbott recorded$130 million of additional tax expense which increased the finaltax expense related to the TCJA to $1.59 billion. The $130 millionof additional tax expense reflects a $120 million increase in thetransition tax from $2.89 billion to $3.01 billion and a $10 millionreduction in the net benefit related to the remeasurement ofdeferred tax assets and liabilities.

The one-time transition tax is based on Abbott’s total post-1986earnings and profits (E&P) that were previously deferred fromU.S. income taxes. The tax computation also requires the determi-nation of the amount of post-1986 E&P considered held in cashand other specified assets. As of December 31, 2018, the remainingbalance of Abbott’s transition tax obligation is approximately$1.58 billion, which will be paid over the next eight years asallowed by the TCJA.

In 2018, taxes on earnings from continuing operations included$98 million of net tax expense related to the settlement of Abbott’s2014-2016 federal income tax audit in the U.S., partial settlementof the former St. Jude Medical consolidated group’s 2014 and 2015federal income tax returns in the U.S. and audit settlements invarious countries. In 2017, taxes on earnings from continuingoperations include $435 million of tax expense related to the gain

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on the sale of the AMO business. In 2016, taxes on earnings fromcontinuing operations include the impact of a net tax benefit ofapproximately $225 million, primarily as a result of the resolutionof various tax positions from prior years, partially offset by theunfavorable impact of non-deductible foreign exchange lossesrelated to Venezuela and the adjustment of the Mylan N.V. equityinvestment, as well as the recognition of deferred taxes associatedwith the then pending sale of AMO.

Exclusive of these discrete items, tax expense was favorablyimpacted by lower tax rates and tax exemptions on foreign incomeprimarily derived from operations in Puerto Rico, Switzerland,Ireland, the Netherlands, Costa Rica, and Singapore. Abbott bene-fits from a combination of favorable statutory tax rules, tax rulings,grants, and exemptions in these tax jurisdictions. See Note 15 tothe consolidated financial statements for a full reconciliation ofthe effective tax rate to the U.S. federal statutory rate.

DISCONTINUED OPERATIONS

Earnings from discontinued operations, net of tax of $34 million,$124 million and $321 million, in 2018, 2017 and 2016, respectively,were driven primarily by the recognition of net tax benefits as aresult of the resolution of various tax positions pertaining toAbbVie’s operations for years prior to the separation. On January 1,2013, Abbott completed the separation of AbbVie Inc. (AbbVie),which was formed to hold Abbott’s research-based proprietarypharmaceuticals business. Abbott has retained all liabilities for allU.S. federal and foreign income taxes on income prior to the sepa-ration, as well as certain non-income taxes attributable to AbbVie’sbusiness. AbbVie generally will be liable for all other taxes attrib-utable to its business.

ASSETS HELD FOR DISPOSITION

In September 2016, Abbott announced that it entered into adefinitive agreement to sell Abbott Medical Optics (AMO), itsvision care business, to Johnson & Johnson for $4.325 billion incash, subject to customary purchase price adjustments for cash,debt and working capital. The decision to sell AMO reflectedAbbott’s proactive shaping of its portfolio in line with its strategicpriorities. In February 2017, Abbott completed the sale of AMO toJohnson & Johnson and recognized a pre-tax gain of $1.163 billionincluding working capital adjustments, which was reported in theOther (income) expense, net line of the Consolidated Statement ofEarnings in 2017. Abbott recorded an after-tax gain of $728 millionin 2017 related to the sale of AMO. The operating results of AMOup to the date of sale continued to be included in Earnings fromcontinuing operations as the business did not qualify for reportingas discontinued operations. For 2017 and 2016, the AMO earnings(losses) before taxes included in Abbott’s consolidated earningswere $(18) million and $30 million, respectively.

As discussed in the Business Acquisitions section, in conjunctionwith the acquisition of Alere, Abbott sold the Triage MeterProcardiovascular and toxicology business and the assets and liabili-ties related to its B-type Natriuretic Peptide assay business run onBeckman Coulter analyzers to Quidel. The legal transfer of certainassets related to these businesses did not occur at the close of thesale to Quidel due to, among other factors, the time required to

transfer marketing authorizations and other regulatory require-ments in various countries. Under the terms of the sale agreementwith Abbott, Quidel is subject to the risks and entitled to thebenefits generated by these operations and assets. The assetspresented as held for disposition in the Consolidated BalanceSheet as of December 31, 2018 and 2017, primarily relate to thebusinesses sold to Quidel.

The following is a summary of the assets held for disposition as ofDecember 31, 2018 and 2017:

(in millions)December 31 2018 2017Trade Receivables, net $ 6 $÷12

Total inventories 3 8


Net property and equipment — 56

Intangible assets, net of amortization — 18

Goodwill 17 102

Non-current assets held for disposition 17 176

Total assets held for disposition $26 $196

RESEARCH AND DEVELOPMENT PROGRAMS

Abbott currently has numerous pharmaceutical, medical devices,diagnostic and nutritional products in development.

RESEARCH AND DEVELOPMENT PROCESS

In the Established Pharmaceuticals segment, the developmentprocess focuses on the geographic expansion and continuousimprovement of the segment’s existing products to provide bene-fits to patients and customers. As Established Pharmaceuticalsdoes not actively pursue primary research, development usuallybegins with work on existing products or after the acquisitionof an advanced stage licensing opportunity.

Depending upon the product, the phases of developmentmay include:

• Drug product development.

• Phase I bioequivalence studies to compare a future EstablishedPharmaceutical’s brand with an already marketed compoundwith the same active pharmaceutical ingredient (API).

• Phase II studies to test the efficacy of benefits in a small groupof patients.

• Phase III studies to broaden the testing to a wider populationthat reflects the actual medical use.

• Phase IV and other post-marketing studies to obtain new clini-cal use data on existing products within approved indications.

The specific requirements (e.g., scope of clinical trials) forobtaining regulatory approval vary across different countries andgeographic regions. The process may range from one year for abioequivalence study project to 6 or more years for complex for-mulations, new indications, or geographic expansion in specificcountries, such as China.

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In the Diagnostics segment, the phases of the research and devel-opment process include:

• Discovery which focuses on identification of a product thatwill address a specific therapeutic area, platform, or unmetclinical need.

• Concept/Feasibility during which the materials andmanufacturing processes are evaluated, testing may includeproduct characterization and analysis is performed to con-firm clinical utility.

• Development during which extensive testing is performed todemonstrate that the product meets specified design require-ments and that the design specifications conform to user needsand intended uses.

The regulatory requirements for diagnostic products vary acrossdifferent countries and geographic regions. In the U.S., the FDAclassifies diagnostic products into classes (I, II, or III) and theclassification determines the regulatory process for approval.While the Diagnostics segment has products in all three classes, thevast majority of its products are categorized as Class I or Class II.Submission of a separate regulatory filing is not required for Class Iproducts. Class II devices typically require pre-market notificationto the FDA through a regulatory filing known as a 510(k) submis-sion. Most Class III products are subject to the FDA’sPre-Marketing Approval (PMA) requirements. Other Class IIIproducts, such as those used to screen blood, require the submis-sion and approval of a Biological License Application (BLA).

In the European Union (EU), diagnostic products are also catego-rized into different categories and the regulatory process, which isgoverned by the European In Vitro Diagnostic Medical DeviceDirective, depends upon the category. Certain product categoriesrequire review and approval by an independent company, knownas a Notified Body, before the manufacturer can affix a CE mark tothe product to show compliance with the Directive. Other prod-ucts only require a self-certification process.

In the Cardiovascular and Neuromodulation segment, theresearch and development process begins with research on aspecific technology that is evaluated for feasibility and commercialviability. If the research program passes that hurdle, it movesforward into development. The development process includesevaluation, selection and qualification of a product design, com-pletion of applicable clinical trials to test the product’s safety andefficacy, and validation of the manufacturing process to demon-strate its repeatability and ability to consistently meetpre-determined specifications.

Similar to the diagnostic products discussed above, in the U.S.,cardiovascular and neuromodulation products are classified asClass I, II, or III. Most of Abbott’s cardiovascular and neuromodu-lation products are classified as Class II devices that follow the510(k) regulatory process or Class III devices that are subject tothe PMA process.

In the EU, cardiovascular and neuromodulation products are alsocategorized into different classes and the regulatory process,which is governed by the European Medical Device Directive andthe Active Implantable Medical Device Directive, varies by class.Each product must bear a CE mark to show compliance with theDirective. Some products require submission of a design dossier tothe appropriate regulatory authority for review and approval prior

to CE marking of the device. For other products, the company isrequired to prepare a technical file which includes testing resultsand clinical evaluations but can self-certify its ability to apply theCE mark to the product. Outside the U.S. and the EU, the regula-tory requirements vary across different countries and regions.

After approval and commercial launch of some cardiovascular andneuromodulation products, post-market trials may be conductedeither due to a conditional requirement of the regulatory marketapproval or with the objective of proving product superiority.

In the second quarter of 2017, the EU adopted the new MedicalDevices Regulation (MDR) and the In Vitro Diagnostic Regulation(IVDR) which replace the existing directives in the EU for medicaldevices and in vitro diagnostic products. The MDR and IVDR willapply after a three-year and five-year transition period, respec-tively, and will impose additional premarket and postmarketregulatory requirements on manufacturers of such products.

In the Nutritional segment, the research and development pro-cess generally focuses on identifying and developing ingredientsand products that address the nutritional needs of particularpopulations (e.g., infants and adults) or patients (e.g., people withdiabetes). Depending upon the country and/or region, if claimsregarding a product’s efficacy will be made, clinical studies typi-cally must be conducted.

In the U.S., the FDA requires that it be notified of proposed newformulations and formulation or packaging changes related toinfant formula products. Prior to the launch of an infant formulaor product packaging change, the company is required to obtainthe FDA’s confirmation that it has no objections to the proposedproduct or packaging. For other nutritional products, notificationor pre-approval from the FDA is not required unless the productincludes a new food additive. In some countries, regulatoryapproval may be required for certain nutritional products,including infant formula and medical nutritional products.

AREAS OF FOCUS

In 2019 and beyond, Abbott’s significant areas of therapeuticfocus will include the following:

Established Pharmaceuticals—Abbott focuses on building country-specific portfolios made up of high-quality medicines that meetthe needs of people in emerging markets. Over the next severalyears, Abbott plans to expand its product portfolio in key thera-peutic areas with the aim of being among the first to launch newoff-patent and differentiated medicines. In addition, Abbott con-tinues to expand existing brands into new markets, implementproduct enhancements that provide value to patients and acquirestrategic products and technology through licensing activities.Abbott is also actively working on the further development ofseveral key brands such as Creon™, Duphaston™, Duphalac™and Influvac™. Depending on the product, the activities focuson development of new data, markets, formulations, deliverysystems, or indications.

Cardiovascular and Neuromodulation—Abbott’s research anddevelopment programs focus on:

• Cardiac Rhythm Management—Development of next-generationrhythm management technologies, including enhanced patientengagement and expanded magnetic resonance(MR)-compatibility.

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• Heart Failure—Continued enhancements to Abbott’s leftventricular assist systems and pulmonary artery heart failuresystem, including enhanced connectivity, user-interfaces andremote patient monitoring.

• Electrophysiology—Development of next-generationtechnologies in the areas of ablation, diagnostic, mappingand visualization and recording and monitoring.

• Vascular—Development of next-generation technologies foruse in coronary and peripheral vascular procedures.

• Structural Heart—Development of minimally-invasive devicesfor the repair and replacement of heart valves and other struc-tural heart conditions.

• Neuromodulation—Development of next-generation technolo-gies with enhanced patient and physician engagement andexpanded MR-compatibility to treat chronic pain, movementdisorders and other indications.

Diabetes Care—Develop enhancements and additional indicationsfor the FreeStyle Libre continuous glucose monitoring system tohelp patients improve their ability to manage diabetes.

Core Laboratory Diagnostics—Abbott continues to commercializeits next-generation blood screening, immunoassay, clinical chem-istry and hematology systems, along with assays, including a focuson unmet medical need, in various areas including infectiousdisease, cardiac care, metabolics, oncology, as well as informaticsand automation solutions to increase efficiency in laboratories.

Molecular Diagnostics—Several new molecular in vitro diagnostic(IVD) tests and “Alinity m”, a next generation instrument system,are in various stages of development and launch.

Rapid Diagnostics—Abbott’s research and development programsfocus on the development of diagnostic products for cardiometa-bolic disease, infectious disease and toxicology.

Nutritionals—Abbott is focusing its research and developmentspend on platforms that span the pediatric and adult nutritionareas: gastro intestinal/immunity health, brain health, mobilityand metabolism, and user experience platforms. Numerous newproducts that build on advances in these platforms are currentlyunder development, including clinical outcome testing, and areexpected to be launched over the coming years.

Given the diversity of Abbott’s business, its intention to remaina broad-based healthcare company and the numerous sources forpotential future growth, no individual project is expected to bematerial to cash flows or results of operations over the next fiveyears. Factors considered included research and developmentexpenses projected to be incurred for the project over the next yearrelative to Abbott’s total research and development expenses, aswell as qualitative factors, such as marketplace perceptions andimpact of a new product on Abbott’s overall market position. Therewere no delays in Abbott’s 2018 research and development activi-ties that are expected to have a material impact on operations.

While the aggregate cost to complete the numerous projects cur-rently in development is expected to be material, the total cost tocomplete will depend upon Abbott’s ability to successfully finisheach project, the rate at which each project advances, and the ulti-mate timing for completion. Given the potential for significantdelays and the risk of failure inherent in the development of medicaldevice, diagnostic and pharmaceutical products and technologies, itis not possible to accurately estimate the total cost to complete all

projects currently in development. Abbott plans to manage itsportfolio of projects to achieve research and development spendingthat will be competitive in each of the businesses in which it partici-pates, and such spending is expected to approximate 7.5 percent oftotal Abbott sales in 2019. Abbott does not regularly accumulate ormake management decisions based on the total expenses incurredfor a particular development phase in a given period.

GOODWILL

At December 31, 2018, goodwill recorded as a result of businesscombinations totaled $23.3 billion. Goodwill is reviewed forimpairment annually in the third quarter or when an event thatcould result in an impairment occurs, using a quantitative assess-ment to determine whether it is more likely than not that the fairvalue of any reporting unit is less than its carrying amount. Theincome and market approaches are used to calculate the fair valueof each reporting unit. The results of the last impairment testindicated that the fair value of each reporting unit was substan-tially in excess of its carrying value.

FINANCIAL CONDITION

CASH FLOW

Net cash from operating activities amounted to $6.3 billion,$5.6 billion and $3.2 billion in 2018, 2017 and 2016, respectively.The increase in Net cash from operating activities in 2018 wasprimarily due to higher segment operating earnings, continuedimprovements in working capital management, timing of pensioncontributions and lower acquisition-related expenses. Theincrease in Net cash from operating activities in 2017 was primar-ily due to the favorable impact of improved working capitalmanagement, the acquisition of the St. Jude Medical businesses,and higher segment operating earnings. The income tax compo-nent of cash from operating activities in 2018 includes thenon-cash impact of the $120 million adjustment to the transitiontax associated with the TCJA. The income tax component ofoperating cash flow in 2017 includes the non-cash impact of$1.46 billion of net tax expense related to the estimated impactof the TCJA. The income tax component of operating cash flowin 2016 includes $550 million of non-cash tax benefits primarilyrelated to the favorable resolution of various tax positions pertain-ing to prior years.

The foreign currency loss related to Venezuela reduced Abbott’scash by approximately $410 million in 2016 and is included in theEffect of exchange rate changes on cash and cash equivalents linewithin the Consolidated Statement of Cash Flows. Future fluctua-tions in the strength of the U.S. dollar against foreign currenciesare not expected to materially impact Abbott’s liquidity.

While a significant portion of Abbott’s cash and cash equivalentsat December 31, 2018, are reinvested in foreign subsidiar-ies, Abbott does not expect such reinvestment to affect its liquidityand capital resources. Due to the enactment of the TCJA, if thesefunds were needed for operations in the U.S., Abbott does notexpect to incur significant additional income taxes in the future torepatriate these funds.

Abbott funded $114 million in 2018, $645 million in 2017 and$582 million in 2016 to defined benefit pension plans. Abbottexpects pension funding of approximately $380 million in 2019 forits pension plans. Abbott expects annual cash flow from operatingactivities to continue to exceed Abbott’s capital expenditures andcash dividends.

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DEBT AND CAPITAL

At December 31, 2018, Abbott’s long-term debt rating was BBBby Standard & Poor’s Corporation and Baa1 by Moody’s. Abbottexpects to maintain an investment grade rating.

Abbott has readily available financial resources, including unusedlines of credit that support commercial paper borrowing arrange-ments and provide Abbott with the ability to borrow up to$5 billion on an unsecured basis. The lines of credit are part of a2018 revolving credit agreement that expires in 2023. Abbottentered into this new revolving credit agreement and terminatedthe 2014 revolving credit agreement on November 30, 2018. Therewere no outstanding borrowings under the 2014 revolving creditagreement at the time of its termination. Any borrowings underthe new revolving credit agreement will bear interest, at Abbott’soption, based on either a base rate or Eurodollar rate, plus anapplicable margin based on Abbott’s credit ratings.

In conjunction with the funding of the St. Jude Medical and Alereacquisitions and the assumption of St. Jude Medical’s and Alere’sexisting debt, Abbott’s total short-term and long-term debtincreased from approximately $9.0 billion at December 31, 2015 to$27.9 billion at December 31, 2017. The increase in debt includedthe following transactions in 2016 and 2017:

• In April 2016, Abbott obtained a commitment for a 364-daysenior unsecured bridge term loan facility for an amount not toexceed $17.2 billion, comprised of $15.2 billion for a 364-daybridge loan and $2.0 billion for a 120-day bridge loan to providefinancing for the acquisition of St. Jude Medical. This facilityhas been terminated as further discussed below.

• In November 2016, Abbott issued $15.1 billion of medium andlong-term debt to primarily fund the cash portion of the acquisi-tion of St. Jude Medical. Abbott also entered into interest rateswap contracts totaling $3.0 billion related to the new debt. Theswaps have the effect of changing Abbott’s obligation from a fixedinterest rate to a variable interest rate obligation on the relateddebt instruments. The $15.2 billion component of the commit-ment for a bridge term loan facility terminated in November 2016when Abbott issued the $15.1 billion of long-term debt.

• In December 2016, Abbott formalized the $2.0 billion compo-nent of the bridge term loan facility and entered into a 120-daybridge term loan facility that provided Abbott the ability toborrow up to $2.0 billion on an unsecured basis to partially fundthe St. Jude Medical acquisition. On January 4, 2017, as part offunding the cash portion of the St. Jude Medical acquisition,Abbott borrowed $2.0 billion under the 120-day senior unse-cured bridge term loan facility. This facility was repaid duringthe first quarter of 2017.

• In the first quarter of 2017, as part of the acquisition of St. JudeMedical, approximately $5.9 billion of St. Jude Medical’s debtwas assumed, repaid, or refinanced by Abbott. This included theexchange of certain St. Jude Medical debt obligations with anaggregate principal amount of approximately $2.9 billion forapproximately $2.9 billion of debt issued by Abbott. Followingthis exchange, approximately $194.2 million of existing St. JudeMedical notes remained outstanding. There were no significantcosts associated with the exchange of this debt. In addition,during the first quarter of 2017, Abbott assumed and subse-quently repaid approximately $2.8 billion of various St. JudeMedical debt obligations.

• In 2017, Abbott borrowed $2.8 billion on an unsecured basisunder a 5-year term loan agreement and borrowed $1.7 billionunder its lines of credit. Proceeds from such borrowings wereused to finance the acquisition of Alere, to repay certain indebt-edness of Abbott and Alere, and to pay fees and expenses inconnection with the acquisition. The borrowings bore interestbased on a Eurodollar rate, plus an applicable margin based onAbbott’s credit ratings. Abbott paid off the term loan in January2018, ahead of its 2022 due date and paid off $550 million of theline of credit in the fourth quarter of 2017 and the remaining$1.15 billion on January 5, 2018. In the fourth quarter of 2017, inconjunction with the acquisition of Alere, Abbott assumed andsubsequently repaid $3.0 billion of Alere’s debt.

• In 2017, Abbott also paid off a $479 million yen-denominatedshort-term borrowing during the year and issued 364-dayyen-denominated debt, of which $199 million and $195 millionwas outstanding at December 31, 2018 and 2017, respectively.

In 2018 Abbott committed to reducing its debt levels and onFebruary 16, 2018, the board of directors authorized the earlyredemption of up to $5 billion of outstanding long-term notes.Redemptions under this authorization during 2018 included$0.947 billion principal amount of its 5.125% Notes due 2019 and$2.850 billion principal amount of its 2.35% Notes due 2019.Abbott incurred a net charge of $14 million related to the earlyrepayment of this debt.

On September 17, 2018, Abbott repaid upon maturity the$500 million aggregate principal amount outstanding of the 2.00%Senior Notes due 2018.

On September 27, 2018, Abbott’s wholly owned subsidiary, AbbottIreland Financing DAC, completed a euro debt offering of€3.420 billion of long-term debt. The proceeds equated to approxi-mately $4 billion. The notes are guaranteed by Abbott.

On October 28, 2018, Abbott redeemed $4.0 billion principalamount of its outstanding long-term debt. This amount is inaddition to the $5 billion authorization discussed above. In con-junction with the redemption, Abbott unwound approximately$1.1 billion in interest rate swaps relating to the 3.40% Note due in2023 and the 3.75% Note due in 2026. Abbott incurred a net chargeof $153 million related to the early repayment of this debt and theunwinding of related interest rate swaps.

The 2018 transactions described above, including the repaymentof $2.8 billion under the 5-year term loan and $1.15 billion ofborrowings under the lines of credit, resulted in the net repaymentof approximately $8.3 billion of debt.

On January 25, 2019, Abbott notified the holders of its 2.80%Notes due 2020, that it will redeem the $500 million outstandingprincipal amount of these notes on February 24, 2019. After theredemption of the 2.80% Notes, approximately $700 million of the$5 billion debt redemption authorized by Abbott’s board of direc-tors in 2018 will remain available.

In September 2014, the board of directors authorized the repur-chase of up to $3.0 billion of Abbott’s common shares from time totime. Under the program authorized in 2014, Abbott repurchased36.2 million shares at a cost of $1.7 billion in 2015, 10.4 millionshares at a cost of $408 million in 2016 and 1.9 million shares at acost of $130 million in 2018 for a total of approximately $2.2 billion.

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On April 27, 2016, the board of directors authorized the issuanceand sale for general corporate purposes of up to 75 million com-mon shares that would result in proceeds of up to $3 billion.No shares have been issued under this authorization.

Abbott declared dividends of $1.16 per share in 2018 compared to$1.075 per share in 2017, an increase of approximately 8 percent.Dividends paid were $1.974 billion in 2018 compared to$1.849 billion in 2017. The year-over-year change in dividendspaid reflects the impact of the increase in the dividend rate.

WORKING CAPITAL

Working capital was $5.6 billion at December 31, 2018 and$11.2 billion at December 31, 2017. The decrease in working capital in2018 reflects the use of cash to repay long-term debt and dividends.

Abbott monitors the credit worthiness of customers and establishesan allowance against a trade receivable when it is probable that thebalance will not be collected. In addition to closely monitoringeconomic conditions and budgetary and other fiscal developments,Abbott regularly communicates with its customers regarding thestatus of receivable balances, including their payment plans andobtains positive confirmation of the validity of the receivables.Abbott also monitors the potential for and periodically has utilizedfactoring arrangements to mitigate credit risk although the receiv-ables included in such arrangements have historically not been amaterial amount of total outstanding receivables.

VENEZUELA OPERATIONS

Since January 2010, Venezuela has been designated as a highlyinflationary economy under U.S. GAAP. On February 17, 2016, theVenezuelan government announced that its three-tier exchangerate system would be reduced to two rates renamed the DIPRO andDICOM rates. The DIPRO was the official rate for food and medi-cine imports and was adjusted from 6.3 to 10 bolivars per U.S.dollar. The DICOM rate was a floating market rate published dailyby the Venezuelan central bank, which at the end of the first quar-ter of 2016 was approximately 263 bolivars per U.S. dollar. As aresult of decreasing government approvals to convert bolivars toU.S. dollars to pay for intercompany accounts, as well as the accel-erating deterioration of economic conditions in the country, Abbottconcluded that it was appropriate to move to the DICOM rate atthe end of the first quarter of 2016. As a result, Abbott recorded aforeign currency exchange loss of $480 million in 2016 to revalueits net monetary assets in Venezuela. After the revaluation, Abbott’sinvestment in its Venezuelan operations was not significant.

CAPITAL EXPENDITURES

Capital expenditures of $1.4 billion in 2018, $1.1 billion in 2017 and$1.1 billion in 2016 were principally for upgrading and expandingmanufacturing and research and development facilities and equip-ment in various segments, investments in information technology,and laboratory instruments placed with customers.

CONTRACTUAL OBLIGATIONS

The table below summarizes Abbott’s estimated contractual obligations as of December 31, 2018.

(in millions)

Payments Due By Period

Total 2019 2020 - 2021 2022 - 20232024 and

ThereafterLong-term debt, including current maturities $19,626 $ ÷ 7 $4,658 $3,105 $11,856

Interest on debt obligations 10,237 668 1,312 1,102 7,155

Operating lease obligations 984 218 302 193 271

Capitalized auto lease obligations 41 14 27 — —

Purchase commitments (a) 2,591 2,454 103 21 13

Other long-term liabilities (b) 3,492 — 1,288 884 1,320

Total (c) $36,971 $3,361 $7,690 $5,305 $20,615

(a) Purchase commitments are for purchases made in the normal course of business to meet operational and capital expenditure requirements.

(b) Other long-term liabilities include estimated payments for the transition tax under the TCJA, net of applicable credits.

(c) Net unrecognized tax benefits totaling approximately $465 million are excluded from the table above as Abbott is unable to reasonably estimate the period of cash settlement with the respec-tive taxing authorities on such items. See Note 15 – Taxes on Earnings from Continuing Operations for further details. The company has employee benefit obligations consisting of pensionsand other post-employment benefits, including medical and life, which have been excluded from the table. A discussion of the company’s pension and post-retirement plans, including fundingmatters is included in Note 14 – Post-employment Benefits.

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CONTINGENT OBLIGATIONS

Abbott has periodically entered into agreements with other com-panies in the ordinary course of business, such as assignment ofproduct rights, which has resulted in Abbott becoming secondarilyliable for obligations that Abbott was previously primarily liable.Since Abbott no longer maintains a business relationship with theother parties, Abbott is unable to develop an estimate of the maxi-mum potential amount of future payments, if any, under theseobligations. Based upon past experience, the likelihood of pay-ments under these agreements is remote. In addition, Abbottperiodically acquires a business or product rights in which Abbottagrees to pay contingent consideration based on attaining certainthresholds or based on the occurrence of certain events.

LEGISLATIVE ISSUES

Abbott’s primary markets are highly competitive and subject tosubstantial government regulations throughout the world. Abbottexpects debate to continue over the availability, method of deliv-ery, and payment for health care products and services. It is notpossible to predict the extent to which Abbott or the health careindustry in general might be adversely affected by these factorsin the future. A more complete discussion of these factors iscontained in Item 1, Business, and Item 1A, Risk Factors.

RECENTLY ISSUED ACCOUNTING STANDARDS

In February 2018, the FASB issued ASU 2018-02, Reclassification ofCertain Tax Effects from Accumulated Other Comprehensive Income,which allows companies to reclassify stranded tax effects resultingfrom the TCJA, from accumulated other comprehensive income(loss) to retained earnings (Earnings employed in the business).The standard would have become effective for Abbott beginning inthe first quarter of 2019, with early adoption permitted. Abbottelected to adopt the new standard at the beginning of the fourthquarter of 2018. As a result of the adoption of the new standard,approximately $337 million of stranded tax effects were reclassifiedfrom Accumulated other comprehensive income (loss) to Earningsemployed in the business.

In August 2017, the FASB issued ASU 2017-12, Targeted Improvementsto Accounting for Hedging Activities, which makes changes to thedesignation and measurement guidance for qualifying hedgingrelationships and the presentation of hedge results. The standardwould have become effective for Abbott beginning in the firstquarter of 2019, with early adoption permitted. Abbott elected toearly adopt ASU 2017-12 in the fourth quarter of 2018. The impactof adopting the standard is not significant to Abbott’s ConsolidatedBalance Sheet and Consolidated Statement of Earnings.

In March 2017, the FASB issued ASU 2017-07, Compensation —Retirement Benefits (Topic 715): Improving the Presentation of NetPeriodic Pension Cost and Net Periodic Postretirement Benefit Costwhich changes the financial statement presentation requirementsfor pension and other postretirement benefit expense. Whileservice cost continues to be reported in the same financial state-ment line items as other current employee compensation costs, theASU requires all other components of pension and other postre-tirement benefit expense to be presented separately from servicecost, and outside any subtotal of income from operations. Thestandard was adopted by Abbott beginning in the first quarter of2018. The change in the presentation of the components of

pension cost per year was applied retrospectively. As a result,approximately $160 million of net pension-related income peryear was moved from the operating lines of the ConsolidatedStatement of Earnings to non-operating income for 2017 and 2016.

In November 2016, the FASB issued ASU 2016-18, Statement ofCash Flows: Restricted Cash, which requires that restricted cashbe included with cash and cash equivalents when reconciling thebeginning and end-of-period total amounts shown on the state-ment of cash flows. Abbott adopted this standard beginning inthe first quarter of 2018, and applied the guidance retrospectivelyto all periods presented. Abbott did not have any restricted cashbalances in the periods presented except for $75 million ofrestricted cash acquired as part of the Alere acquisition in October2017. The restrictions on this cash were eliminated prior to theend of 2017.

In October 2016, the FASB issued ASU 2016-16, Income Taxes (Topic740): Intra-Entity Transfers of Assets Other Than Inventory, whichrequires the recognition of the income tax effects of intercompanysales and transfers of assets, other than inventory, in the period inwhich the transfer occurs. Abbott adopted the standard on January1, 2018, using a modified retrospective approach and recorded acumulative catch-up adjustment to Earnings employed in the busi-ness in the Consolidated Balance Sheet that was not significant.

In August 2016, the FASB issued ASU 2016-15, Statement of CashFlows: Classification of Certain Cash Receipts and Cash Payments,which clarifies how companies should present and classify certaincash receipts and cash payments in the statement of cash flows.The ASU became effective for Abbott in the first quarter of 2018and did not have a material impact to the Company’s ConsolidatedStatement of Cash Flows.

In February 2016, the FASB issued ASU 2016-02, Leases, whichrequires lessees to recognize assets and liabilities for most leaseson the balance sheet. The standard becomes effective for Abbottbeginning in the first quarter of 2019. Abbott completed a detailedreview of its leases. Abbott will use the modified retrospectiveapproach with the package of practical expedients which allowsAbbott to carry forward the historical lease classification for exist-ing or expired leases and to account for lease and non-leasecomponents as a single lease component for its lessee arrange-ments. Abbott does not expect the new lease accounting standardto have a material impact on the amounts reported in theConsolidated Statement of Earnings. As a result of adopting ASU2016-02, Abbott expects to record approximately $800 million to$900 million of right of use assets and lease liabilities for operat-ing leases on the Consolidated Balance Sheet.

In January 2016, the FASB issued ASU 2016-01, FinancialInstruments – Recognition and Measurement of Financial Assets andFinancial Liabilities, which provides new guidance for the recogni-tion, measurement, presentation, and disclosure of financial assetsand liabilities. Abbott adopted the standard on January 1, 2018.Under the new standard, changes in the fair value of equity invest-ments with readily determinable fair values are recorded in Other(income) expense, net within the Consolidated Statement ofEarnings. Previously, such fair value changes were recorded inother comprehensive income. Abbott has elected the measurementalternative allowed by ASU 2016-01 for its equity investmentswithout readily determinable fair values. These investments aremeasured at cost, less any impairment, plus or minus any changes

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PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995—A CAUTION CONCERNING FORWARD-LOOKING STATEMENTS

Under the safe harbor provisions of the Private SecuritiesLitigation Reform Act of 1995, Abbott cautions investors that anyforward-looking statements or projections made by Abbott,

including those made in this document, are subject to risks anduncertainties that may cause actual results to differ materiallyfrom those projected. Economic, competitive, governmental,technological and other factors that may affect Abbott’s operationsare discussed in Item 1A, Risk Factors.

Assuming $100 invested on December 31, 2013 with dividends reinvested.

Abbott Laboratories

S&P 500 Index

S&P 500 Health Care

20142013 2015 2016 2017 2018$50

$100

$150

$200

$250

P E R F O R M A N C E G R A P H

This graph compares the changein Abbott’s cumulative total shareholderreturn on its common shares with theStandard & Poor’s 500 Index and theStandard & Poor’s 500 Health Care Index.

resulting from observable price changes in orderly transactionsfor an identical or similar investment of the same issuer. Changes inthe measurement of these investments are being recorded in Other(income) expense, net within the Consolidated Statement ofEarnings. As part of the adoption, the cumulative-effect adjustmentto Earnings employed in the business in the Consolidated BalanceSheet for net unrealized losses on equity investments that wererecorded in Accumulated other comprehensive income (loss) asof December 31, 2017 was not significant.

In May 2014, the FASB issued ASU 2014-09, Revenue fromContracts with Customers, which provides a single comprehensivemodel for accounting for revenue from contracts with customersand supersedes nearly all previously existing revenue recognitionguidance. The core principle of the ASU is that an entity shouldrecognize revenue when it transfers promised goods or services

to customers in an amount that reflects the consideration towhich the entity expects to be entitled in exchange for thosegoods or services. Abbott adopted the new standard as ofJanuary 1, 2018, using the modified retrospective approachmethod. Under this method, entities recognize the cumulativeeffect of applying the new standard at the date of initial applica-tion with no restatement of comparative periods presented. Thecumulative effect of applying the new standard resulted in anincrease to Earnings employed in the business in theConsolidated Balance Sheet of $23 million which was recordedon January 1, 2018. The new standard has been applied only tothose contracts that were not completed as of January 1, 2018.The impact of adopting ASU 2014-09 was not significant to indi-vidual financial statement line items in the Consolidated BalanceSheet and Consolidated Statement of Earnings.

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S U M M A R Y O F S E L E C T E D F I N A N C I A L D ATA(Dollars in millions except per share data)

Year Ended December 31 2018 2017 2016 2015(a) 2014

Summary of Operations:Net Sales $ 30,578 27,390 20,853 20,405 20,247

Cost of products sold $ 14,884 14,384 9,644 9,354 9,785

Research & development $ 2,300 2,260 1,447 1,408 1,349

Selling, general, and administrative $ 9,744 9,182 6,736 6,791 6,540

Operating earnings $ 3,650 1,564 3,026 2,853 2,573

Interest expense $ 826 904 431 163 150

Interest income $ (105) (124) (99) (105) (77)

Other (income) expense, net $ 56 (1,447) 1,281 (388) (18)

Earnings before taxes $ 2,873 2,231 1,413 3,183 2,518

Taxes on earnings from continuing operations $ 539 1,878 350 577 797

Earnings from continuing operations $ 2,334 353 1,063 2,606 1,721

Net earnings $ 2,368 477 1,400 4,423 2,284

Basic earnings per common share from continuing operations $ 1.32 0.20 0.71 1.73 1.13

Basic earnings per common share $ 1.34 0.27 0.94 2.94 1.50

Diluted earnings per common share from continuing operations $ 1.31 0.20 0.71 1.72 1.12

Diluted earnings per common share $ 1.33 0.27 0.94 2.92 1.49

Financial Positions:Working capital (b) $ 5,620 11,235 20,116 4,969 3,089

Long-term investment securities $ 897 883 2,947 4,041 229

Net property & equipment $ 7,563 7,607 5,705 5,730 5,935

Total assets $ 67,173 76,250 52,666 41,247 41,207

Long-term debt, including current portion $ 19,366 27,718 20,684 5,874 3,448

Shareholders’ investment $ 30,722 31,098 20,717 21,326 21,639

Book value per share $ 17.50 17.84 14.07 14.48 14.35

Other Statistics:Gross profit margin % 51.3 47.5 53.8 54.2 51.7

Research and development to net sales % 7.5 8.3 6.9 6.9 6.7

Net cash from operating activities $ 6,300 5,570 3,203 2,966 3,675

Capital expenditures $ 1,394 1,135 1,121 1,110 1,077

Cash dividends declared per common share $ 1.16 1.075 1.045 0.98 0.90

Common shares outstanding (in thousands) 1,755,619 1,743,602 1,472,869 1,472,665 1,508,035

Number of common shareholders 42,827 44,581 45,545 47,278 55,171

Market price per share—high $ 74.92 57.77 45.79 51.74 46.50

Market price per share—low $ 55.58 38.34 36.00 39.00 35.65

Market price per share—close $ 72.33 57.07 38.41 44.91 45.02

(a) In February 2015, Abbott completed the disposition of the developed markets branded generics pharmaceuticals and animal health businesses.See Note 4 to the Consolidated Financial Statements for additional information.

(b) In 2016, working capital includes $13.6 billion of cash that was used to fund the cash portion of the St. Jude Medical acquisition on January 4, 2017.

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D I R E C T O R S A N D C O R P O R AT E O F F I C E R S

DIREC TORSRobert J. Alpern, M.D.Ensign Professor of Medicine,Professor of Internal Medicine, andDean of Yale School of Medicine,New Haven, Conn.

Roxanne S. AustinPresident and Chief Executive OfficerAustin Investment Advisors,Newport Beach, Calif.

Sally E. Blount, Ph.D.Michael L. NemmersProfessor of Strategy andformer Dean of theJ.L. Kellogg Graduate Schoolof Managementat Northwestern University,Evanston, Ill.

Michelle A. KumbierSenior Vice President andChief Operating Officer,Harley-Davidson Motor Company,Milwaukee, Wisc.

Edward M. LiddyRetired Chairmanand CEO,The Allstate Corporation,Northbrook, Ill.

Nancy McKinstryChief Executive Officerand Chairman of theExecutive Board ofWolters Kluwer N.V.,Alphen aan den Rijn,The Netherlands

Phebe N. NovakovicChairman andChief Executive Officer,General Dynamics Corporation,Falls Church, Va.

William A. OsbornRetired Chairman andChief Executive Officer,Northern Trust Corporationand The Northern Trust Company,Chicago, Ill.

Samuel C. Scott IIIRetired Chairman, Presidentand Chief Executive Officer,Corn Products International, Inc.,Westchester, Ill.

Daniel J. StarksRetired Chairman, Presidentand Chief Executive Officer,St. Jude Medical, Inc.,St. Paul, Minn.

John G. StrattonRetired Executive Vice President andPresident of Global Operations,Verizon Communications Inc.,New York, New York

Glenn F. TiltonRetired Chairman, President andChief Executive Officer,UAL CorporationChicago, Ill.

Miles D. WhiteChairman of the Boardand Chief Executive Officer,Abbott Laboratories

SENIOR M ANAG EME NTMiles D. White*Chairman of the Boardand Chief Executive Officer

Robert B. Ford*President andChief Operating Officer

Hubert L. Allen*Executive Vice President,General Counsel and Secretary

Brian J. Blaser*Executive Vice President,Diagnostics Products

John M. Capek, Ph.D.*Executive Vice President,Ventures

Stephen R. Fussell*Executive Vice President,Human Resources

Andrew H. Lane*Executive Vice President,Established Pharmaceuticals

Daniel Salvadori*Executive Vice President,Nutritional Products

Brian B. Yoor*Executive Vice President,Finance andChief Financial Officer

Roger M. Bird*Senior Vice President,U.S. Nutrition

Sharon J. Bracken*Senior Vice President,Rapid Diagnostics

Charles R. Brynelsen*Senior Vice President,Abbott Vascular

Jaime Contreras*Senior Vice President,Core Laboratory Diagnostics,Commercial Operations

Robert E. Funck*Senior Vice President,Finance and Controller

Sammy Karam*Senior Vice President,Established Pharmaceuticals,Emerging Markets

Joseph Manning*Senior Vice President,International Nutrition

Corlis D. MurraySenior Vice President,Quality Assurance, Regulatory andEngineering Services

Michael J. Pederson*Senior Vice President,CRM and AF/EP

Jared L. Watkin*Senior Vice President,Diabetes Care

Alejandro D. Wellisch*Senior Vice President,Established Pharmaceuticals,Latin America

CORP OR ATE VICEPRESIDE NT SGregory A. AhlbergVice President,Diagnostics,Commercial Operations,Europe, Middle East and Africa

Keith BoettigerVice President,Neuromodulation

Melissa D. BrotzVice President,Public Affairs andCorporate Marketing

P. Claude BurckyVice President,Government Affairs

Christopher J. CalamariVice President,Pediatric Nutrition

Kathryn S. CollinsVice President,Commercial Legal Operations

Michael D. DaleVice President,Structural Heart

Thomas C. EversVice President,U.S. Government Affairs

John S. FrelsVice President,Research and Development,Immunoassay/Clinical Chemistry

Renaud GabayVice President,Nutrition, North Asia

John F. GinascolVice President,Nutrition, Supply Chain

Jeffrey N. HaasVice President,Infectious Disease,Developed Markets

Damian P. HalloranVice President,Infectious Disease,Emerging Markets

Gene Huang, Ph.D.Vice President,Chief Economist

Gary C. JohnsonVice President,Clinical, Regulatory and HealthEconomics Outcomes Research,Cardiovascular and Neuromodulation

Brian LehmanVice President,Commercial Operations,Cardiac Arrythmias/Heart Failure

Scott M. LeinenweberVice President,Investor Relations,Licensing and Acquisitions

David P. MarkVice President,Internal Audit

Louis H. MorroneVice President,Transfusion Medicine

Mark W. Murphy, IIVice President,Business and Technology Services

Martin NordenstahlVice President,Nutrition,Asia Pacific

Joseph L. NovakVice President,Taxes

Niamh PellegriniVice President,Commercial Operations,Abbott Vascular

Karen M. PetersonVice President,Treasurer

Christopher J. ScogginsVice President,Diabetes Care,Commercial Operations

Eric ShroffVice President,Abbott Point of Care

King Hon ToVice President,Core Lab DiagnosticsCommercial Operations,Asia Pacific

Kwang Ming TuVice President,Abbott Diagnostics Division,China

Andrea F. WainerVice President,Molecular Diagnostics

Frank WeitekamperVice President,Abbott Transition Organization

Randel W. WoodgriftVice President,Global Operations,Cardiovascular and Neuromodulation

James E. YoungVice President,Chief Ethics andCompliance Officer

Jawad ZiaVice President,Established Pharmaceuticals,India

*Denotes executive officer

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SHARES LIS TINGThe ticker symbol for Abbott’s commonshares is ABT. The principal market forAbbott’s common shares is the New YorkStock Exchange. Shares are also listed onthe Chicago Stock Exchange and traded onvarious regional and electronic exchanges.Outside the United States, Abbott’s sharesare listed on the Swiss Stock Exchange.

QUAR TERLY DIVIDE ND DATESDividends are expected to be declared,recorded, and paid on the followingschedule in 2019, pending approval by theBoard of Directors:

Quarter Declared Recorded PaidFirst 2/22 4/15 5/15Second 6/14 7/15 8/15Third 9/12 10/15 11/15Fourth 12/13 1/15/20 2/14/20

TA X INFORMATION FOR SHAREHOLDERSAbbott is an Illinois High ImpactBusiness and is located in a U.S. federalForeign Trade Sub-Zone (Sub-Zone 22F).Dividends may be eligible for a subtractionfrom base income for Illinois income-tax purposes.If you have any questions, please contactyour tax advisor.

DIV IDE ND RE INVES TME NT PL A NThe Abbott Dividend ReinvestmentPlan offers registered shareholdersan opportunity to purchase additionalshares, commission-free, throughautomatic dividend reinvestment and/oroptional cash investments. Interestedpersons may contact the transfer agentlisted in the right-hand column, orcall Abbott’s Investor Newsline.

DIV IDEND DIREC T DEP OSITShareholders may have quarterly dividendsdeposited directly into a checking or savingsaccount at any financial institution thatparticipates in the Automated ClearingHouse system. For more information,please contact the transfer agent, listedbelow, right.

DIREC T REG IS TR ATION S YS TEMIn August 2008, Abbott implemented aDirect Registration System (DRS) for allregistered shareholder transactions.Shareholders will be sent a statement inlieu of a physical stock certificate forAbbott Laboratories stock. Please contactthe transfer agent with any questions.

ANNUAL MEE TINGThe Annual Meeting of Shareholders willbe held at 9 a.m. on Friday, April 26, 2019,at Abbott’s corporate headquarters.Questions regarding the annual meetingmay be directed to the Corporate Secretary.A copy of Abbott’s 2018 Form 10-K AnnualReport, as filed with the Securities andExchange Commission, is available on theAbbott Web site at www.abbott.com or bycontacting the Investor Newsline.

CEO AND CFO CER TIFIC ATIONSIn 2018, Abbott’s chief executive officer(CEO) provided to the New York StockExchange the annual CEO certificationregarding Abbott’s compliance with theNew York Stock Exchange’s corporate-governance listing standards. In addition,Abbott’s CEO and chief financial officer(CFO) filed with the U.S. Securities andExchange Commission all requiredcertifications regarding the quality ofAbbott’s public disclosures in its fiscal2018 reports.

INVES TOR NE WSLINE(224) 667-7300

INVES TOR RE L ATIONSDept. 362, AP6D2Abbott100 Abbott Park RoadAbbott Park, IL 60064-6400 U.S.A.(224) 667-6100

SHARE HOLDE R SERVICES ,TR ANSFE R AG E NT AND REG IS TR ARComputershareP.O. Box 43078Providence, RI 02940-3078(888) 332-2268 (U.S. or Canada)(781) 575-3910 (outside U.S. or Canada)www.computershare.com

CORP OR ATE SECRE TARYDept. 364, AP6D2Abbott100 Abbott Park RoadAbbott Park, IL 60064-6400 U.S.A.(224) 667-6100

WEBSITEwww.abbott.com

ABBOT T ONLINE ANNUAL REP OR Twww.abbott.com/annualreport

G LOBAL CITIZENSHIP RE P OR Twww.abbott.com/citizenship

SHAREHOLDER INFORM ATIONShareholders with questions about theiraccounts may contact the transfer agent.Individuals who would like to receiveadditional information, or have questionsregarding Abbott’s business activities, maycall the Investor Newsline, write AbbottInvestor Relations, or visit Abbott’s Web site.

S H A R E H O L D E R A N D C O R P O R AT E I N F O R M AT I O N

Some statements in this annual report may be forward-looking statements for purposes of the Private SecuritiesLitigation Reform Act of 1995. Abbott cautions thatthese forward-looking statements are subject to risksand uncertainties that may cause actual results to differmaterially from those indicated in the forward-lookingstatements. Economic, competitive, governmental,technological and other factors that may affect Abbott’soperations are discussed in Item 1A, “Risk Factors,” inour Securities and Exchange Commission 2018 Form10-K and are incorporated by reference. We undertake noobligation to release publicly any revisions to forward-looking statements as the result of subsequent events ordevelopments, except as required by law.

The Abbott 2018 Annual Report was printed with the useof renewable wind power resulting in nearly zero carbonemissions, keeping 16,425 pounds of CO2 from the atmosphere.This amount of wind-generated electricity is equivalent to14,251 miles not driven in an automobile or 1,187 trees planted.The Abbott Annual Report cover and text is printed on recycledpaper that contains a minimum of 10% post-consumer fiber andthe financial pages on 30% post-consumer fiber.

Abbott trademarks and productsin-licensed by Abbott are shown initalics in the text of this report.

© 2019 Abbott Laboratories

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A B B O T T . C O M

2018 annual report - abbott

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